KUALA LUMPUR (July 29): Malaysia’s burgeoning power sector is a catalyst for the growth of the sukuk market, said RAM Rating Services Bhd (RAM Ratings) today.

In a statement, the rating agency said based on its data and information from the Fully Automated System for Issuing or Tendering (FAST), sukuk comprises more than 93% of independent power producer (IPP) bond issues after the year 2000 compared to only 25% before that.

RAM Ratings’ Infrastructure and Utilities Ratings co-head Chong Van Nee said sukuk has become more prominent over the years.

“Power bonds have accounted for 39% of Malaysia’s RM239 billion of infrastructure bond issues in the last decade,” she said.

“Nearly all of Malaysia’s outstanding IPP bonds — amounting to RM28 billion — are sukuk issues,” she added.

RAM Ratings said the Malaysian power sector key catalysts are its supportive regulatory environment, robust Power Purchase Agreements (PPAs) and strong sponsors as well as counterparties.

The local bond market has served an important tool for the sector’s funding needs, with tenures ranging from 10 to 30 years, the rating agency said.

RAM Ratings said the introduction of imported gas to further diversify Malaysia’s fuel supply sources, increased efforts to develop renewable energy, incentive-based regulation for Peninsular Malaysia and the government’s push for competitive bidding as well as continued subsidy rationalisation are critical for the longer-term wellbeing of the sector.

RAM Ratings highlighted that the Malaysian power sector will continue to be dominated by national and state-owned utility companies and backed by the government through subsidies and periodic tariff reviews.

RAM Ratings also noted the robust PPAs that allow strong private sector participation, diversified fuel supply and generation mix, and matured local-currency bond market that supports long-term funding of power infrastructure.