Malaysia’s Tenaga plans $2.7b sukuk after Project 3B deal

Tenaga Nasional is the largest power producer in Malaysia.

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.

The cost of Project 3B has risen to around MYR11 billion ($2.9 billion) from MYR10 billion, Thomson Reuters publication IFR quoted a banker with knowledge of the matter as saying.

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.

Also read:

Sembcorp in ‘preliminary’ talks with 1MDB to acquire Edra Global Energy

1MDB may scrap IPO, to fall back on trade sale

1MDB to seek investors for Bandar Malaysia development

Deutsche Bank-led creditors may seek early repayment on $975m loan to 1MDB

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.