Issuer: RP Hydro (Kelantan) Sdn Bhd
Size: RM975 million
Structure: Wakala bi al-istithmar
Banks: CIMB (sole adviser and arranger)
Date: July 2023
To stand a chance of increasing its renewable energy capacity to 31% of total energy capacity by 2025, Malaysia needs to invest substantially in wind, solar and hydro power generation. It also needs to use viable and innovative ways to help fund the investment.
Issuance of sustainable Islamic finance instruments is one key funding option, as demonstrated by the success of the RM975 million ($204 million) green SRI sukuk from hydropower group RP Hydro Kelantan (RPHK) last summer – which is Asia’s best Islamic project finance deal this year.
The transaction, solely structured, arranged and executed by CIMB, was important for two reasons: it was the country’s largest, ringgit-denominated, greenfield non-recourse project financing; and the first hydro project financing deal funded through the domestic debt capital markets.
Clearly a key impact of this is the potential for other renewable projects in the country – and the broader Asean region – to be financed in this way. This would not only support Malaysia’s 2025 renewable energy capacity goals, but also its longer-term mission to hit net zero by 2050.
Proceeds from the sukuk will be used to fund up to 80% of the cost to build and operate three small hydropower plants
However, such complex transactions take time to bring together, with a large part of the challenge being getting potential investors onboard. To achieve this, RPHK and CIMB needed to run an extensive investor-education programme on the project’s technical parameters and its credit metrics, including how the deal’s structure ring-fences cashflows with resilient coverage, what the contractual arrangements look like under the Renewable Energy Power Purchase Agreements with Tenaga Nasional as the sole off-taker, and how robust the sukuk’s terms are in providing investor protection.
RPHK is jointly owned by Rising Promenade, a hydropower technology company, and independent water and power producer Malakoff Corporation, via its wholly owned subsidiary, Tuah Utama.
Together with a 20% equity contribution from the project shareholders, proceeds from the sukuk will be used to fund up to 80% of the cost to build and operate three small hydropower plants in the district of Kuala Krai, Kelantan. On completion, they should generate a total of 84 megawatts of power.
The project marks Malakoff’s entry into the hydropower generation business. Under the group’s sustainability framework, it has set a long-term target of achieving a renewable energy capacity of 1,400MW by 2031, with key focus on solar, small hydro and waste-to-energy projects.
