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TNB Power Generation debuts sustainability Sukuk for controversial Nenggiri Power Project

TNB Power Generation (TNBPG) has issued its inaugural sustainability Sukuk worth RM1.5 billion (US$340.11 million) on the 2nd June 2022 under its RM10 billion (US$2.27 billion) Wakalah Bi Al-Istithmar Islamic medium-term note program. The issuance will exclusively fund the Nenggiri hydroelectric power plant project. The wholly-owned subsidiary of Tenaga Nasional priced the Sukuk in a three-tranche issuance featuring a RM150 million (US$34.01 million) 10-year tranche, a RM750 million (US$170.06 million) 15-year tranche and an RM600 million (US$136.04 million) 20-year tranche. While the issuance was well received by investors, it has been in some controversy due to the aborigines’ group, Jaringan Kampung Orang Asli Kelantan (JKOAK), protesting over the implications of the power plant project to the community.

“TNBPG’s inaugural sustainability Sukuk issuance was welcomed warmly with robust investor demand, especially from investors with strict ESG investment requirements, allowing TNBPG to price it at levels which represented the tightest spreads above Malaysian Government Securities compared to other ‘AAA’-rated issuers at issuance, despite the prevalence of a volatile market backdrop and heavy competing issuance pipeline,” a spokesperson from CIMB Investment Bank, which acted as a joint principal advisor along with Maybank Investment Bank, told ISFI.

The issuance received a bid-to-cover ratio 3.4 times over the issuance amount and saw participation from more than 30 accounts. It was priced at 4.7% for the 10-year tranche, 5.05% for the 15-year tranche and 5.2% for the 20-year tranche, representing spreads of 44bps, 44bps and 50bps above the Malaysian Government Securities. The Sukuk facility was issued in three tranches with a variety of medium- to long-term tenors to accommodate a wide horizon of investor investment mandates with a heavier skew on the longer tenors as preferred by TNBPG in order to effectively match the financial profile of the major infrastructure project with a 30-year purchase price allocation.

The Wakala Bi Al-Istithmar structure was chosen for this issuance as the structure does not require a lock-up of the company’s physical tangible assets. It is also widely recognized in the Malaysian and global Sukuk debt capital markets. “The Securities Commission Malaysia also provides incentives for the adoption of Wakalah wherein TPGSB is able to avail of income tax deductions on the issuance expenditures related to the Sukuk Wakalah program until the year of assessment of 2025,” the spokesperson from CIMB Investment Bank shared with ISFI.

The 300 MW hydroelectric power plant project is located in the state of Kelantan which will be undertaken by TNBPG’s wholly-owned subsidiary, TNBPG Hydro Nenggiri. Malaysian Rating Corporation (MARC), which assigned a ‘AAAIS’ final rating to the Sukuk program, held that the project is consistent with the main sustainability issues in the electricity generation sector and will contribute to national SDGs and national climate change priorities. The project will help reduce the carbon intensity of energy supplied by the national grid as well as the economy and allow the state to better cope with climate change impacts including floods, the rating agency said.

JKOAK held a protest in front of the Prime Minister’s Office in Putrajaya on the 7th June calling for Tenaga Nasional to cancel the project, arguing that the project will flood 5,384 hectares of their ancestral land. Their memorandum asserted that the project will not solve the flood, drought and electricity issues it intends to. Additionally, the former minister in the Prime Minister’s Department responsible for national unity and social wellbeing, Waytha Moorthy Ponnusamy, also urged the government to cancel the project arguing that the site is historically significant to the aborigines’ community. Tenaga National issued a statement acknowledging the concerns. The project broke ground on the 12th June 2022.

TNB Power Generation RM1.5 billion (US$340.11 million) sustainability Sukuk Wakalah

2nd June 2022
Summary of terms and conditions
Issuer TNB Power Generation
Size of issue RM1.5 billion (US$340.11 million)
Tranche 1: RM150 million (US$34.01 million)
Tranche 2: RM750 million (US$170.06 million)
Tranche3: RM600 million (US$136.04 million)
Mode of issue Bookbuilding
Purpose To finance and/or refinance loans obtained to finance the development costs of the Nenggiri hydroelectric power plant project.
Tranche 1: 10 years
Tranche 2: 15 years
Tranche3: 20 years
Issuance price 100%
Profit rate Tranche 1: 4.7% p.a.
Tranche 2: 5.05% p.a.
Tranche 3: 5.2% p.a.
Payment Semi-annual basis
Currency Malaysian ringgit
Maturity date Tranche 1: 2 June 2032
Tranche 2: 2 June 2037
Tranche 3: 2 June 2042
Lead manager(s) CIMB Investment Bank, Maybank Investment Bank
Principal advisor(s) CIMB Investment Bank, Maybank Investment Bank
Bookrunner(s) CIMB Investment Bank, Maybank Investment Bank
Governing law Malaysian Law
Legal advisor(s)/council Solicitors to joint principal advisors/joint lead arrangers/joint lead managers: Adnan Sundra & Low
Solicitors to the issuer: Zaid Ibrahim & Co
Islamic structure Wakalah Bi Al-Istithmar
Listing Not listed
Underlying asset An investment portfolio consisting of a portion of TNB Power Generation’s Shariah compliant general business (at least 33%) and commodities purchased and sold to TPGSB as the purchaser under the Shariah principle of Murabahah (via a Tawarruq arrangement)
Shariah advisor(s) CIMB Islamic Bank, Maybank Islamic Bank
Rating ‘AAAIS’ by MARC
Tradability Tradable and transferable subject to the selling restrictions in the principal terms and conditions.
Face value/minimum investment RM1,000 (US$226.74)
Investor breakdown Asset management: 26%
Insurance: 40%
Financial institutions: 16%
Government agencies and others: 18%

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