This article first appeared in The Edge Malaysia Weekly on December 25, 2017 - December 31, 2017

PRESS Metal Aluminium Holdings Bhd debuted on the global debt capital market on Oct 30, with the issuance of a US$400 million, five-year, high-yield US dollar bond — the first by a Malaysian issuer in over a decade.

The issuance allows for funding diversification for the aluminium producer and profiles the group globally by establishing a benchmark yield curve in the US dollar bond space, according to Maybank Investment Bank Bhd.

Maybank IB was the joint lead manager and joint book runner for the issuance,  with Citigroup, Deutsche Bank and JP Morgan. Maybank IB was also the sole Labuan International Financial Exchange listing agent for the bond.

The US dollar bond allows Press Metal to manage its balance sheet and cash flow through the shifting of secured debt to unsecured debt via the refinancing of the group’s existing debt.

It reprofiles Press Metal’s debt maturity and frees up cash flow to be used for working capital and/or expansionary capital expenditure.

The bond was issued by Press Metal’s wholly-owned subsidiary, Press Metal (Labuan) Ltd. Press Metal acted as the parent guarantor, while Press Metal Bhd, Press Metal Bintulu Sdn Bhd and Press Metal Sarawak Sdn Bhd were its subsidiary guarantors.

It has a fixed interest rate of 4.8% per annum, callable after three years with the first call date being Oct 30, 2020. Standard & Poor’s rated it BB- with a positive outlook and Moody’s gave it a rating of Ba3 with a stable outlook.

Besides Press Metal’s standing as the largest integrated aluminium producer and extruder of aluminium products in Southeast Asia, the success of the US dollar high-yield bond was due to its scarcity value. The issuance took advantage of investor’s appetite for high-yield credit from a Malaysian issuer in the commodity sector. There was also a quieter supply of bonds from Southeast Asia in the US dollar credit space.

“The saturation of the universe of US dollar bonds from Malaysia by large-cap investment-grade issuers also contributed to the scarcity value of the US dollar notes offering by Press Metal,” says Maybank IB.

The bond received strong demand from investors with a total of US$3.8 billion orders from 240 accounts across Asia and Europe, resulting in an oversubscription of 9.5 times. It was allocated to a diverse group of investors, with 23% from Europe.

Global investor confidence in holding Press Metal debt is due to, among other factors, Sumitomo Corp’s support of the group. Sumitomo holds a 20% stake in two of Press Metal’s aluminium smelting subsidiaries and is the group’s largest customer.

Besides support from Sumitomo, Press Metal has the advantage of being a cost-competitive producer due to a long-term power purchase agreement with Sarawak Energy Bhd for its smelting plants in the state.

In the nine months ended Sept 30, Press Metal’s operating profit rose 25.9% to RM755.05 million, on the back of a 30% jump in revenue to RM6 billion, compared with the corresponding period in 2016. Net profit increased 27.6% to RM566.73 million.

A notable mention in the sukuk space is the issuance of RM1 billion green sustainable and responsible investment (SRI) sukuk by Quantum Solar Park (Semenanjung) Sdn Bhd on Oct 6. It was the largest green SRI Islamic bond in the world, and the largest sukuk issued to fund solar energy plants issued in Malaysia.

The Centre for International Climate and Environment Research (CICERO), an independent, not-for-profit research institute based in Norway, has awarded the highest grade of “Dark Green” to QSP Semenanjung’s green bond framework.

This grading entails zero emission solutions and governance structures that integrate environmental concerns into all activities. CIMB Investment Bank is the principal adviser for the issuance and joint lead arranger and manager with Maybank IB.

The issuance of the sukuk is to part-finance costs for the construction, operation and maintenance of three 50mw alternating current solar photovoltaic power plants in Gurun, Kedah; Jasin, Melaka; and Merchang, Terengganu.

Upon completion and operation of the three solar power plants, QSP Semenanjung will become the largest solar power producer in Malaysia with a capacity of 150mwac.

QSP Semenanjung is a wholly-owned subsidiary of Quantum Solar Park Malaysia Sdn Bhd, which is owned by ItraMAS Technology Sdn Bhd, MalTechPro Sdn Bhd and CamLite Sdn Bhd. ItraMAS has been in the green technology sector since 1999.

The project will require investments of up to RM1.24 billion, with the proceeds from the green SRI sukuk to cover 80% of the cost, the rest being equity investment from QSP Semenanjung.

On June 8, Malaysian Rating Corporation Bhd (MARC) assigned a AA-IS rating to the sukuk, reflecting the adequate projected cash flow coverage on the back of 21-year solar power purchase agreements with Tenaga Nasional Bhd.

“The rating also considers the well-structured contract arrangements with respect to the engineering, procurement and construction (EPC) and operations and maintenance (O&M) of the plants.

“Moderating the rating are the risks associated with project completion, uncertainty around the solar irradiance estimates and overall plant performance,” says MARC in the statement accompanying the sukuk rating.

The EPC contracts for the projects have been awarded to Scatec Solar Solutions Malaysia Sdn Bhd, a wholly-owned subsidiary of Scatec Solar ASA, a Norwegian-based solar power plant developer and operator of 322mw solar power generating capacity.

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