Solar energy company Tadau Energy made history earlier this year with the issuance in July of the world’s first-ever ‘green’ Sukuk, under Malaysia’s SRI Sukuk framework launched in 2014 to encourage socially responsible investment through the application of tax incentives.
The Sustainable and Responsible Investment Sukuk Framework was introduced by the Securities Commission in August 2014 to facilitate the financing of sustainable and responsible investment initiatives. It sets out eligible projects including in the areas of natural resources, renewable energy, energy efficiency, community and economic development and the development of Islamic endowment properties (Waqf) covering a wide remit of potential projects – from sustainable land development to affordable housing, public hospitals to waste management, urban revitalization to efficient power generation. The framework offers issuers a tax incentive in the form of a deduction of issuing expenses against taxable income, making it an appealing avenue for issuers to explore.
Tadau Energy chose to issue an SRI Sukuk explicitly because of this tax benefit, while the green certification of the transaction also met with the wishes of shareholders. The RM250 million (US$59.17 million) paper, with tenors ranging from two to 16 years, was structured according to the principles of leasing (Ijarah) and deferred delivery (Istisnah) with proceeds used to develop a large-scale solar park. The deferred delivery contract relates to the construction phase of the project, while the leasing contract covers the operating period of the plant. The paper was brought to market in less than six months, and received healthy interest from investors with an orderbook 2.15 times oversubscribed. Notably, the demand was highest for the longer-term tenors, particularly for the long-dated series of 10 years and above, which were oversubscribed up to four times. Its status as the first-ever green Sukuk, along with a high rating of ‘AA3’ from RAM Ratings, made the transaction particularly attractive to investors and highlighted the attractiveness of the SRI Sukuk Framework as a means of raising capital.
More green Sukuk are expected to hit the market as Malaysia focuses on developing itself as a center for sustainable financing, and with such a wide range of applications and an obvious tax advantage to normal issuance, it is an option worth considering for a corporate seeking capital. However, the framework is not just limited to Malaysian firms either. At a meeting at the CIMB Asean Research Institute in August 2017, Securities Commission Chairman Ranjit Ajit Singh confirmed that the framework was replicable across ASEAN, with green bonds and Sukuk offering the potential to meet the vast infrastructure requirements of the region.
“This is the start into deepening the market and we welcome any Asean countries to replicate this framework,” he said. “In fact, a number of corporates and fund managers have expressed their eagerness in working with the framework and we call upon more corporates to do so.”
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Tadau Energy Green Sukuk RM250 million (US$59.17 million)  27th July 2017 |
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| Summary of Terms and Conditions | |
| Issuer | Malaysian Trustee |
| Obligor | Tadau Energy |
| Size of issue | RM250 million (US$59.17 million) |
| Mode of issue | Book running, bought deal, private placement |
| Purpose | To develop large-scale solar park |
| Tenor | Two to 16 years |
| Currency | Malaysian ringgit |
| Profit rate | 4.8–6.2% |
| Facility agent(s) | Affin Hwang Investment Bank |
| Principal advisor(s) | Affin Hwang Investment Bank |
| Lead arranger(s) | Affin Hwang Investment Bank |
| Issuance advisor(s) | CIMB Howden Insurance Brokers |
| Governing law | Malaysian law |
| Legal advisor(s)/counsel | Adnan Sundra & Low, Christopher & Lee Ong, Alex Pang & Co |
| Listing | No |
| Underlying assets | Tadua Energy registered properties |
| Rating | ‘AA3’ from RAM Ratings |
| Shariah advisor(s) | Dr Aznan Hasan |
| Structure | Istisnah, Ijarah |
| Tradability | Yes |