Tenaga Nasional Bhd is seeking to raise as much as MYR10 billion (S$2.7 billion) in an Islamic bond (sukuk) issue to develop a power plant project it is planning to take over from debt-laden state fund 1Malaysia Development Bhd (1MDB), sources familiar with the matter told Reuters.
The bond by Malaysia’s national utility would be the largest sukuk globally this year, a major boost for the sukuk market after issuance fell in the first quarter to its lowest point in four years, the news wire reported.
The planned purchase of 1MDB’s 70 per cent stake in Project 3B, a greenfield 2,000 MW coal-fired plant project, will take the pressure off 1MDB to find the funds to develop the project and help it focus on paring down debt of more than $11 billion. The state investment firm’s hefty debt has been a source of controversy in national news flow as it has impacted Malaysia’s currency and its credit rating.
Related story: Tenaga Nasional to take 1MDB’s 70% stake in Project 3B
While Project 3B fits well with Tenaga’s own energy supply needs, some analysts are worried that the company may end up overpaying if the government pushes for 1MDB to gain the best deal it can. Local politicians and journalists have been quick to question if local corporations are bailing 1MDB out.
The sum that Tenaga will pay 1MDB has yet to be determined as the two firms are still in talks. Tenaga chief executive officer Azman Mohd has defended the plan, saying Tenaga would not pay a premium and asserting it was not a bailout for 1MDB.
1MDB, whose board of advisers is chaired by Malaysian Prime Minister Najib Razak, won the rights to build Project 3B in 2014, beating out Tenaga and other bidders. But the state fund’s liquidity problems put its ability to build the plant in question. Japan’s Mitsui & Co owns the remaining 30 per cent of the project.
It is the first power asset to be disposed of by 1MDB, as the fund looks to wind down its businesses. Project 3B is parked under Edra Global Energy Bhd, 1MDB’s power unit which was earlier intended for an initial public offering.
Reuters added that bankers and analysts have also said Tenaga will not only use debt to finance the project, with debt usually accounting for 75 to 85 percent of its project financing.
Tenaga is also likely to be able to charge higher electricity tariffs than 1MDB under the terms of its proposed takeover by Malaysia’s Energy Commission.
Tenaga’s planned issuance for the project would surpass a $2 billion sukuk by the Indonesian government last month. Global sukuk issues have slumped as weak oil prices have hit the economies of Malaysia and countries in the Middle East.