Malaysia’s biggest electricity company plans to tap the US dollar debt market for the first time in two decades with its debut offering of global Islamic bonds.
Tenaga Nasional Berhad is asking bankers to submit pitches for a US$3 billion sukuk program, according to people familiar with the matter, and proceeds are to be used to fund overseas investments including the purchase of a 30 percent stake in Turkish power firm GAMA Enerji A.S. for US$243 million. The company last issued dollar-denominated debt in 1996, when it sold 100-year conventional notes.
The planned sale would help stem a slump in issuance of global Islamic bonds and be Malaysia’s first since the US Federal Reserve raised interest rates last month. The Malaysian ringgit slid 19 percent compared with the US dollar last year, Asia’s biggest loss, as investor confidence was dented by tumbling crude oil prices, an investigation into political donations taken by Malaysian Prime Minister Najib Razak and concern about debt levels at state investment company 1Malaysia Development Bhd (1MDB).
“Timing is everything and Tenaga’s plan is telling people the ringgit will not depreciate too much from here and that it will stand to benefit from the debt sale,” James Lau, a Kuala Lumpur-based investment director at Pheim Asset Management Asia Sdn, which oversees US$300 million, said in a phone interview. “1MDB’s problem is more of a governance issue, which should not affect Tenaga’s financials or borrowing costs.”
Tenaga’s planned sale comes after Najib last week said that 1MDB will have trimmed its debt by 40.4 billion ringgit (US$9.28 billion), from 42 billion ringgit in March 2014, once ongoing disposals of its power and property assets are completed.
Offerings of global securities that pay returns on assets to comply with Islam’s ban on interest last year slumped 28 percent to a five-year low of US$34.7 billion, data compiled by Bloomberg show. Malaysia’s CIMB Group Holdings Bhd, the top sukuk arranger worldwide for seven of the last nine years, predicts a pickup this year to at least US$40 billion.
Bankers’ proposals for Tenaga’s sukuk program have to be submitted by the end of this week, people familiar with the proposal said. The utility’s chief financial officer, Fazlur Rahman Zainuddin, did not immediately answer an e-mail and phone calls seeking comment.
Tenaga plans to add 5,000MW of regional capacity as part of a five-year expansion, chief executive officer Azman Mohd said in a Dec. 14 statement. That is sufficient to power 12.5 million Malaysian homes.
The electricity company has a market capitalization of 74.8 billion ringgit and a total installed capacity of 10,818MW. It sold the country’s third-biggest sukuk in November — an 8.93 billion ringgit offering — to part finance the construction of a 2,000MW coal-fired power plant. The company has debt totaling 26.1 billion ringgit, Bloomberg data show.
Tenaga is rated BBB+, the third-lowest investment grade by Standard & Poor’s and Fitch Ratings. The yield on the company’s existing conventional dollar bonds due 2025 climbed 31 basis points last year to 4.39 percent and was 4.33 percent yesterday, data compiled by Bloomberg show.
Were five-year notes to be included in Tenaga’s coming sukuk program, the securities would be “considered attractive” at a yield of 160 basis points above similar maturity US Treasuries, according to Maybank Islamic Asset Management Sdn. The yield on US government debt of that maturity jumped 40 basis points to 1.76 percent in the fourth quarter, before declining four basis points yesterday.
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