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Malaysian SWF Khazanah Subsidiary Issues Debut RM210m (US$50m) SRI Green Sukuk Wakalah to Finance Renewable Energy Projects that Contribute to Emission Reductions

Cenergi SEA Bhd, the sustainable and renewable energy subsidiary of Malaysian sovereign wealth fund, Khazanah Nasional Bhd, successfully issued its maiden ASEAN SRI Green Sukuk on 23 December 2021– a two-tranche RM210 million (US$50 million) Senior Islamic Medium-Term Notes (iMTN) offering based on the Shariah principle of Wakalah Bi Al-Istithmar.

The Sukuk was issued under Cenergi’s RM1.5 billion (US$357.14 million) Wakalah Bi Al-Istithmar Islamic Notes Issuance Programme in nominal value established in November 2021. The Sukuk Programme has been assigned a final rating of A1/Stable for the senior Sukuk Wakalah and A3/Stable for the subordinated perpetual Sukuk Wakalah by the local RAM Rating Services Bhd. CIMB Investment Bank Bhd was the sole principal adviser, sole lead arranger and sole lead manager for the Sukuk Programme.

The issuance also comes under Cenergi’s Green Sukuk Framework established in October 2021 which sets out the guidelines and principles for the issuances of Green Sukuk Wakalah under the Sukuk Programme, and has been assigned Environmental Benefit ratings by RAM Sustainability Bhd, which also provided a second opinion on Cenergi’s Green Sukuk Framework.

“Proceeds from our Green Sukuk Wakalah will be utilised to finance projects and activities that contribute to emission reductions and have direct positive environmental impact,” explained Cenergi Group chief executive officer Hairol Azizi Tajudin.

Cenergi’s Green Sukuk Framework was established to set out clear and transparent guidelines and principles for the issuances of Green Sukuk Wakalah under the Sukuk Programme. “The proceeds of the Green Sukuk Wakalah are intended to be used to finance projects and activities that contribute to emission reductions and have direct positive environmental impact. Such projects are intended to contribute towards the following Sustainable Development Goals (SDGs): 7 – Affordable and Clean Energy, 12 – Responsible Consumption and Production; and 13 – Climate Action. The iMTN is also in compliance with the Securities Commission’s Sustainable and Responsible Investment (SRI) Sukuk framework, the ASEAN Green Bonds Standards issued by the ASEAN Capital Markets Forum and Green Bond/Sukuk Principles issued by the International Capital Market Association.

The issuance of the ASEAN SRI Green Senior Sukuk Wakalah, added Tajudin, “provides a wider opportunity for the company to effectively manage and optimise its cashflow, to refinance its existing loans, to grow its business, to fund its upcoming renewable energy (RE) projects and to support the government’s aspiration in the enhancement of the RE sector.”

Cenergi is a growing sustainable energy solutions company specialising in reducing carbon emissions through renewable energy and energy efficiency projects. With a full range of technical, commercial and operational capabilities, the company specialises in developing projects in which emissions are converted into energy. The Cenergi Group project portfolio currently consists of biogas, solar photovoltaic (Solar PV) and energy efficiency projects. Khazanah has provided financial backing to Cenergi totalling RM163.2 million at end October 2021 and is actively involved in the company’s key investment decisions through board representation.

“We continue to seek and invest in pioneering technologies that promote carbon emissions reduction via our new ventures arm. Through this arm, Cenergi Group has recently identified a potential new business segment – sustainable biomass fuel,” stressed Tajudin.

According to the company, it has to date through 19 operational projects supplied 233 GWh of electricity to the Malaysian National Grid Network, generated RM38 million in savings in energy costs from EE projects, contributed 107 GWh of total energy savings from EE projects and generated 1,284,332 tonnes in carbon savings.

The ASEAN SRI Green Senior Sukuk Wakalah issuance comprises two tranches – a first tranche of a RM85 million Sukuk with a 5-year tenor maturing in 2026 with a profit rate of 5.30% per annum and a second tranche of RM125 million Sukuk with a 7-year tenor maturing in 2028 with a profit rate of 5.55% per annum.

In its Second Opinion Report, RAM Sustainability Bhd confirmed that Cenergi’s Green Sukuk Framework “is aligned with the transparency and disclosure requirements of Securities Commission Malaysia’s SRI Sukuk Framework, the ASEAN Green Bond Standards and the globally recognised Green Bond Principles (GBP). The Framework outlines important aspects such as the intended use of proceeds, project evaluation and selection, management of proceeds and reporting commitments. Issuance proceeds will be used to fund green and sustainable energy projects such as biogas, solar, other RE and EE projects as well as the production of sustainable biomass fuel.”

Khazanah is by far the most proactive Sukuk issuer among SWFs from OIC member countries and has pioneered Sukuk structures based on the Islamic principle of Wakalah bil Istithmar in the SRI and CSR space where the proceeds are used to fund eligible Sharia’a-compliant projects in education, community capacity building and upliftment projects.

Khazanah last went to the international market in May 2021 when it issued a two-tranche and dual-tenor US$1 billion Sukuk Wakalah issued via its Labuan-incorporated special purpose vehicle, Dua Capital Ltd. The SWF, founded in 1993, has current assets under management estimated at US$30,492,200,000, according to the SWF Institute.

Sustainable value and investments in its portfolio are important components in the SWF’s strategy for Khazanah, according to Managing Director Datuk Shahril Ridza Ridzuan. In 2021 he identified five Strategic Priorities going forward including “further enhancing our commercial returns, delivering impactful value through our strategic investments, becoming a responsible organisation through embedding ESG considerations across all investment activities, building a strong digital and technology foundation and finally, investing in our people to achieve a culture of high performance and collaboration.”

Green bonds are a growing category of fixed-income securities, and Green Sukuk could widen the appeal of Sukuk beyond its traditional markets in Asia and the Middle East to include ethical investors in Western countries. However, Green Sukuk issuance has still a long way to go to catch up with Green Bond issuance.

Indonesia is the only sovereign issuer of Green Sukuk, while Malaysia has pioneered corporate Green Sukuk including issues by Chinese-backed entities such as Tadau Energy, Quantam Solar and Cypark Resources. In addition, Cagamas Berhad, Majid Al Futtaim, a leading shopping mall developer across the Middle East, and the Islamic Development Bank also successfully priced their maiden Green Sukuk issuances in 2020 and 2021.

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