TNB unit plans to raise RM4b via sukuk for Project 4A

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KUALA LUMPUR (Sept 14): Tenaga Nasional Bhd (TNB) announced that its 51%-owned Southern Power Generation Sdn Bhd plans to raise RM4 billion via the issuance of sukuk, which will have a tenure of up to 20 years.

According to TNB, proceeds of the sukuk will be used by Southern Power Generation to fund up to 80% of the total construction cost of the 2X720MW combined-cycle gas turbine power plant in Pasir Gudang, Johor, previously code-named Project 4A.

It was previously reported that the project will cost some RM4.7 billion.

The sukuk, said TNB in its Bursa Malaysia filing today, will be issued in one lump sum. While the issuance may not have an immediate material impact to earnings, TNB said the exercise could potentially raise its consolidated gearing.

"For illustrative purposes, based on TNB's consolidated balance sheet ended May 31, and assuming that the maximum amount of RM4 billion nominal value of the sukuk wakalah is issued, TNB's consolidated gearing would increase from 39.8% to 42.3%," the state-owned electricity generator and distributor said in the filing.

The planned sukuk has been assigned an indicative rating of AA-IS by Malaysian Rating Corp Bhd. The issuance is advised by CIMB Investment Bank Bhd.

Southern Power Generation had, in September 2016, inked a power purchase agreement with TNB. The Pasir Gudang power plant, which is in the midst of construction, is expected to achieve commercial operations by July 1, 2020.

The remainder 49% stake in Southern Power Generation is held by SIPP Energy Sdn Bhd, which is linked to Johor ruler, Sultan Ibrahim Ismail.

Shares in TNB, controlled by the government via Khazanah Nasional Bhd, closed unchanged at RM14.58 today, valuing the electricity firm at a market capitalisation of RM82.51 billion.

It is worth noting that in terms of market capitalisation, TNB is the second largest company on the local bourse after the country's largest bank Malayan Banking Bhd, or commonly known as Maybank.