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Green Finance / Treasury & Capital Markets
Tadau Energy issues Malaysia’s first green sukuk
Chito Santiago 1 Sep 2017

Solar energy company Tadau Energy on July 27 successfully issued 250 million ringgit (US$58.40 million) of sustainable responsible investment (SRI) sukuk, representing the first green sukuk launched in Malaysia.

Certified by the Center for International Climate and Environmental Research – Oslo, Norway (Cicero), the offering is referred to as the green SRI sukuk Tadau and has tenures ranging from two to 16 years.

Tadau Energy is a project company undertaking a large scale solar project of 50 MW in Kudat, Sabah under two 21-year power purchase agreements entered into with Sabah Electricity in December 2016. Proceeds from the green SRI sukuk Tadau will be channelled to finance the project.

Tadau Energy is committed to contributing to Malaysia’s efforts to reduce its dependence on power generated using fossil fuels. Its goal is to provide an environmentally friendly, clean and sustainable power supply.

Affin Hwang Investment Bank is the principal adviser, lead arranger, lead manager and facility agent for the green SRI sukuk Tadau issuance.

The transaction is another milestone in Malaysia’s capital markets following the launch of the SRI sukuk framework by Securities Commission Malaysia in 2014. It marks a crucial step in financing the country’s infrastructure investments and also represents an innovative channel to address the global funding gaps in green financing.

“We believe that there is a significant opportunity arising from strong global interest in green financing where innovative fundraising instruments like green and SRI sukuk are a viable solution to address global needs for green and other forms of sustainable and responsible financing,” says Securities Commission Malaysia chairman Tan Sri Ranjit Ajit Singh.

To complement the SRI sukuk framework and promote greater utilization of green sukuk as a fundraising channel, several incentives are in place to attract green issuers. These include tax deductions until year of assessment 2020 on issuance costs of SRI sukuk which are lodged with, or approved or authorized by the Securities Commission Malaysia. Also in place are tax incentives for green technology activities in energy, transportation, building, waste management and supporting services activities, as well as financing incentives under the green technology financing scheme with total funds allocation of 5 billion ringgit (US$1.17 billion) until 2022.

To be eligible for tax deductions under SRI sukuk incentives, the issuers using the SRI sukuk framework for green projects must ensure the proceeds raised are used to fund eligible SRI projects in the natural resources, renewable energy and/or energy efficiency sectors.

In accordance with international practices, issuers are also encouraged to appoint independent experts to undertake an assessment of the eligibility of the project before the issuance of the green sukuk.

The framework underlying this first green sukuk is the result of the collaboration between Securities Commission Malaysia, Bank Negara Malaysia and the World Bank Group in an effort to develop an ecosystem to facilitate the growth of green sukuk and to introduce innovative financial instruments to tackle global infrastructure needs and green financing.

In developing the SRI sukuk framework in 2014, Securities Commission Malaysia identified four broad areas for determining project eligibility – natural resources, green projects, social impact and waqf (a charitable endowment under Islamic law). The first SRI sukuk was subsequently issued by Khazanah Nasional in 2015 to finance the development of trust schools.

The SRI sukuk framework is also intended to meet the demands of both retail and sophisticated investors as green sukuk provide the institutional investors with a means of accessing sustainable investments in the fixed income market in a familiar, low-risk vehicle. Issuing green sukuk likewise sends a strong, pro-active message to stakeholders while attracting a new investor base.

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