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EPF to buy RM5.25bil Jimah sukuk

KUALA LUMPUR : The Employees Provident Fund (EPF) will subscribe up to RM5.25bil for the institutional portion of a RM8.98bil sukuk murabahah programme by Tenaga Nasional Bhd’s (TNB) subsidiary Jimah East Power Sdn Bhd (JEP), according to a source familiar with the matter.

TNB had in July this year acquired a 70% equity interest in JEP from 1Malaysia Development Bhd (1MDB) for RM47mil.

The corporate exercise is the largest sukuk offering globally this year.

Japan’s Mitsui & Co Ltd retains its 30% stake in the venture, which entails the construction of a 2,000MW coal fired power plant in Negeri Sembilan known as Project 3B. Proceeds of the issuance will be used for this purpose.

“The terms of the sukuk is consistent with the criteria for bonds that the EPF had subscribed to in the past,” says the source.

On Nov 20, The Malaysian Rating Corp Bhd (MARC) had assigned a AA-IS rating on JEP’s sukuk, which is the fourth-highest investment grade.

MARC has a “stable” rating outlook on the debt instrument.

One of the key terms of the sukuk is for the equity portion of some RM2.6bil comprising ordinary and redeemable preference shares to be injected into JEP on a pro-rata basis, subject to a finance-to-equity ratio not exceeding 80:20.

Under the current proposed structure, which entails a 77.3:22.7 debt and equity financing mix, the sukuk murabahah will begin repayment on a semi-annual basis from 2021 onwards with the final repayment in 2038, about six years before the expiry of the 25-year power purchase agreement (PPA) with TNB in 2044, according to MARC.

Yesterday, Bloomberg reported that the TNB unit plans to sell RM5.25bil in Islamic bonds via private placement to institutions and RM3.73bil via an auction.

The first tranche has maturities of 16 to 23 years at a coupon rate of between 6.2% and 6.7%, while the second is due in five to 15 years at a rate of 5% to 5.97%.

The sukuk issuance comes at a crucial time as the US Federal Reserve is expected to hike interest rates by next month.

The potential increase in borrowing costs has a huge bearing on TNB, which has RM1.76bil worth of US dollar denominated borrowings as at Aug 31.

The utility giant’s effective average cost of borrowing was 4.8%, according to its latest earnings disclosure.

The fund-raising for JEP marks the end of a period of uncertainty over the financing for Project 3B, which had previously faced several delays due to its transfer from 1MDB to TNB.

“A minimum yield of 6.2% at the bond’s face value is an attractive investment proposition for the fund.

“But it is not necessarily reflective of higher risks,” says an analyst.

Similar-grade corporate bonds with a tenure of 15-years carry a yield of 5.7%, according to Bond Pricing Agency Malaysia (BPAM) data.

Another benchmark, the government’s 10-year shariah compliant securities, currently yields 4.45%.

TNB shares soared by 2.29% yesterday to close at RM13.42, its highest in five months.

Apart from the sukuk issuance, the rise in TNB shares may also be attributed to a Bloomberg report last Saturday regarding 1MDB’s sale of its power unit Edra Global Energy Bhd.

– The Star

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