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Friday, September 30, 2022

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Telekosang Hydro One’s Sukuk: The world’s first greenfield hydro mini Sukuk

Telekosang Hydro One issued the world’s first greenfield mini-hydro project green Sukuk worth RM470 million (US$106.72 million) on the 6th August 2019 confirmed by the Climate Bonds Initiative. Maturing in 2037, the Sukuk proceeds will finance two hydropower projects by Telekosang Hydro One (TH1) and Telekosang Hydro Two (TH2) which each signed a 21-year renewable energy power purchase agreement with Sabah Electricity to develop one small hydropower plant. Once completed, the plants will have a combined installed capacity of 40 MW. The issuance was assigned a final rating of ‘AA3’ by RAM Ratings (RAM).

In addition to the Sukuk issuance, the company also issued RM120 million (US$27.25 million)-worth of ASEAN Green junior bonds to fund the TH1 and TH2 projects which is set to mature in 2039. The total cost of the projects is estimated at RM577.85 million (US$131.21 million) and will be funded via the issuance proceeds from the senior Sukuk (80%), the junior bonds (3%) and redeemable preference shares (17%), according to a breakdown from RAM.

The 15-series Sukuk issuance carries the following maturity and profit rate schedule:

Figure 1: Issue size and pricing

Series

Maturity

Issue size (RM)

Profit rate

1

4-Aug-2023

10,000,000

4.80%

2

6-Aug-2024

20,000,000

4.85%

3

6-Aua-2025

20,000,000

4.90%

4

6-Aug-2026

20,000,000

4.95%

5

6-Aua-2027

25,000,000

5.00%

6

4-Aua-2028

30,000,000

5.05%

7

6-Aug-2029

30,000,000

5.10%

8

6-Aua-2030

35,000,000

5.15%

9

6-Aug-2031

35,000,000

5.20%

10

6-Aug-2032

35,000,000

5.30%

11

5-Aug-2033

40,000,000

5.40%

12

4-Aug-2034

40,000,000

5.50%

13

6-Aua-2035

40,000,000

5.60%

14

6-Aug-2036

45,000,000

5.70%

15

6-Aug-2037

45,000,000

5.80%

TOTAL

470,000,000

Source: MIDF Amanah Investment Bank

“Two mini hydro assets were combined together to allow the issuer to tap the capital markets with a sizeable issue. This enhances liquidity position and pricing discovery as compared to raising funds through a traditional loan that is typically on a per project basis,” a spokesperson from MIDF shared.

The Sukuk issuance contributes to SDG 7 and 8. The projects are expected to generate long-term renewable energy of at least 245,280 gigawatt hours per annum and avoid approximately 172,909 tons of carbon dioxide per annum. The projects are also expected to generate socioeconomic benefits through the provision of employment during the construction, installation and maintenance of the plants and through the creation of business opportunities for local contractors and machinery suppliers.

While the Sukuk had initially been received positively, delays in the project completion and liquidity and financing concerns have resulted in the Sukuk being placed under ratings watch with a negative outlook on the 14th June 2022. The negative rating watch may result in the Sukuk facing a multiple-notch ratings downgrade.

Telekosang ASEAN Green SRI Sukuk
RM470 million (US$106.72 million)

6th August 2019
Summary of terms and conditions

Issuer

Malaysian Trustees

Obligor

Telekosang Hydro One

Size of issue

RM470 million (US$106.72 million)

Mode of issue

Bought deal

Purpose

To partially finance the project cost of two small hydropower plants with installed capacity of 24 megawatt (MW) and 16 MW in Tenom, Sabah undertaken by the issuer and Telekosang Hydro

Tenor

18 years

Issuance price

RM470 million

Payment

Semi-annual

Currency

Malaysian ringgit

Maturity date

6th August 2037

Lead manager(s)

MIDF Amanah Investment Bank

Bank Islam Malaysia

Principal advisor(s)

MIDF Amanah Investment Bank

Financial advisor(s)

ZJ Advisory

Governing law

Malaysian Law

Legal advisor(s)/council

Shearn Delamore & Co

Islamic structure

Wakalah Bi Istithmar

Murabahah via Tawarruq arrangement

Listing

No

Underlying asset

Shariah compliant commodities

Shariah advisor(s)

MIDF Amanah Investment Bank

Rating

‘AA3’ ( RAM Ratings)

Tradability

Yes

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