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.
While Project 3B fits well withTenaga’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.