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QSPM’s green SRI Sukuk: Malaysia sets yet another benchmark

Malaysia made the headlines once more as Quantum Solar Park Malaysia (QSPM) issued the largest green SRI Sukuk for the amount of RM1 billion (US$236.55 million). The facility, which will fund the construction of the largest solar power project of its kind in Southeast Asia, is the second paper to be floated under the Securities Commission Malaysia (SC)’s SRI Sukuk framework. We speak to Lee Choo Boo, the executive director of QSPM, to bring you the exclusive.

The paper, which consists of 33 tranches, follows the Murabahah structure. The decision to use the structure stemmed from QSPM’s plan to develop a portfolio of three power plants concurrently. Lee told IFN that after a discussion with CIMB, it was decided that all three power plants would be consolidated into a single holding company to issue the Sukuk as it was more efficient to consolidate all three power plants into a single holding company.

“This achieves scale and makes it feasible to tap Sukuk financing which provides longer tenors at competitive pricing. The portfolio structure also provides greater comfort to investors in terms of construction and operations risks,” Lee expounded.

IFN previously reported that the three large-scale solar photovoltaic plants, to be built in the states of Kedah, Melaka and Terengganu at a total cost of approximately RM1.25 billion (US$295.68 million), will have an aggregate capacity of 150 MWac or 197 MWp.

As the largest green SRI Sukuk to fund the largest solar power project of its kind in the region, and only the second to tap the SC’s Sri Sukuk framework after Tadau Energy in July, the paper did not materialize without struggles. As the first large-scale solar power project to sign a power purchase agreement with Tenaga Nasional, the country’s government-owned power utility company, QSPM had to develop operational mechanisms which are acceptable to TNB as the offtaker, QSPM as the developer and the Sukukholders as well.

During development, QSPM also conducted constant briefings to various government agencies and private sector entities in an aim to ensure all stakeholders were moving in the right direction. “Sukuk investors and rating agencies are very familiar with gas and coal fired IPPs [independent power producers] but are entirely new to solar IPPs. So there has to be a detailed process to explain the risk profile of solar plants to get the financial community comfortable with solar IPPs,” Lee said.

The challenges did not hinder the issuer from receiving an enthusiastic response for the facility. “We believe the pricing achieved is competitive especially considering that this is by far the largest solar IPP in the country,” Lee quipped. QSPM is optimistic of tapping the Islamic debt capital market again, citing that Sukuk offers long tenors and competitive pricing and receive support from regulators like Bank Negara Malaysia and the SC.

QSPM green SRI Sukuk
RM1 billion (US$236.55 million)

6th October 2017
Issuer and obligorQuantum Solar Park (Semenanjung)
Size of issueRM1 billion
Mode of issueBought deal
PurposeTo finance the development of three 50 MWac solar power plants in Malaysia
Tenor1.5 to 17.5 years
Profit rates4.81-6.16%
PaymentSemi-annual basis
CurrencyMalaysian ringgit
Maturity date6th April 2019 to 6th April 2035
Lead manager(s)CIMB Investment Bank and Maybank Investment Bank
Principal advisor and bookrunnersCIMB Investment Bank
Governing lawMalaysian law
Legal advisor(s)/counselFor lenders: Adnan Sundra & Low For sponsors: Zaid Ibrahim & Co
ListingBursa Malaysia Islamic Services
Underlying assetsRubber SMR-20
Rating‘AA’
Shariah advisor(s)CIMB Islamic Bank
StructureMurabahah structure (Tawarruq arrangement)
TradabilityYes
Face value/minimum investmentRM1,000 (US$236.55)

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