Financial closure for UiTM Solar sukuk

UiTM becomes 1st university in the world to raise green SRI sukuk to fund large-scale RE project

By HABHAJAN SINGH / Pic By BLOOMBERG

A UNIVERSITI Teknologi Mara (UiTM) unit has achieved a number of milestones in its quest to develop and operate a greenfield solar power plant, including efforts to raise funds via sukuk.

In the latest development, UiTM Solar Power Sdn Bhd had recently achieved financial closure for green sustainable and responsible investment (SRI) sukuk of up to RM240 million for a 50MWac renewable energy (RE) project in Gambang, Pahang.

“Who would have thought UiTM, a public university, could have done this. We are the first university in the world to raise green SRI sukuk to fund a large-scale RE project,” UiTM Solar CEO Dr Amir Hisham Hashim (picture) said in an update via social media.

He said it goes to show that the local financial market is there to support RE investments in the country.

Amir Hisham was previously a senior GM at Puncak Niaga Holdings Bhd and the chief strategy officer at TNB Energy Services Sdn Bhd.

Financial close is the stage in a financial agreement where conditions have been satisfied or waived and necessary documents executed. At this stage, drawdowns are allowed.

The Gambang project is one of two large-scale solar (LSS) photovoltaic power purchase agreements (PPAs) that Tenaga Nasional Bhd (TNB) had inked in March 2017.

UiTM Solar and TNB Sepang Solar Sdn Bhd, a subsidiary of TNB, emerged as winners of the Energy Commission’s competitive bidding exercise to develop transmissionconnected LSS projects.

The Gambang project comes on the heels of the world’s first green SRI sukuk by Tadau Energy Sdn Bhd in July 2017.

The green sukuk is the result of collaboration between the Securities Commission Malaysia (SC), Bank Negara Malaysia and the World Bank Group. The underlying aim is to develop an ecosystem to facilitate the growth of green sukuk and to introduce innovative financial instruments to accommodate global infrastructure needs and green financing.

To complement the SRI sukuk framework and promote greater utilisation of green sukuk as a fundraising channel, the SC had put in place several incentives to attract green issuers.

They include tax deduction until year of assessment 2020 on issuance costs of SRI sukuk approved or authorised by or lodged with the SC; tax incentives for green technology activities in energy, transportation, building, waste management and supporting services activities; and financing incentives under the Green Technology Financing Scheme with total funds allocation of RM5 billion until 2022.

Strong Rating
Last month, Malaysian Rating Corp Bhd (MARC) assigned a preliminary rating of AA-IS to UiTM Solar for the proposed sukuk with a ‘Stable’ outlook.

MARC noted that the preliminary rating reflected the adequate cashflow coverage under the rating case projections on the back of the 21-year fixed tariff solar PPA with TNB.

It also reflected the well-structured contracts for the engineering, procurement and construction (EPC) and operations and maintenance, as well as the project finance structure.

On the risk side, MARC said the rating was mainly constrained by risks associated with project completion and uncertainties inherent in estimating solar resource and plant performance.

MARC said it viewed the contractors, Northwest Electric Power Design Institute Co Ltd and ET Energy (M) Sdn Bhd (ETEM), to have the requisite experience and financial resources to meet the provisions of the contracts and achieve commercial operations date by Nov 1, 2018.

“Project completion delays and cost overrun risks are adequately addressed. Liquidated damages provided for under the EPC contracts and the procurement of insurance coverage for delays should mitigate compensation payable to TNB and potential cashflow mismatches,” it said.

It noted that the project has a built-in 4% contingency buffer amounting to RM11.2 million and a RM7 million bank guarantee to mitigate construction cost overruns.

“Key equipment risks including solar panels and inverters are mitigated given the proven technology and reputable manufacturers, Jinko Solar Holdings Co Ltd and Sungrow Power Supply Co Ltd,” it said.

MARC said UiTM Solar’s cashflow coverage remained adequate under its stress scenarios of lower plant performance ratio, a six-month delay in project completion and project cost overruns of 5%.

UiTM Solar is 98%-owned by UiTM Energy & Facilities Sdn Bhd, a wholly owned subsidiary of UiTM Holdings Sdn Bhd which in turn is wholly owned by UiTM.