This article first appeared in The Edge Financial Daily on September 15, 2017

KUALA LUMPUR: Tenaga Nasional Bhd (TNB) announced that its 51%-owned Southern Power Generation Sdn Bhd plans to raise RM4 billion via sukuk to fund up to 80% of the total construction cost of its 1,440mw combined-cycle gas turbine power plant in Pasir Gudang, Johor.

Previously code-named Project 4A, it was reported that the project would cost some RM4.7 billion.

In a Bursa Malaysia filing yesterday, TNB said the sukuk, which will be issued in a lump sum, will have a tenure of up to 20 years.

While the issuance may not have a material impact on its consolidated earnings — though that still depends on the effective borrowing cost, among others — TNB said the exercise will raise its consolidated debt pile.

“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 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 remaining 49% stake in Southern Power Generation is held by SIPP Energy Sdn Bhd, a company linked to the Sultan of Johor, Sultan Ibrahim Sultan Iskandar. Recall that the sultan was a shareholder of SIPP Energy back in 2015, when the power project was awarded to the company on a direct basis.

The project was supposed to be fast-tracked with an initial commercial operation date slated for 2018, but was delayed as SIPP Energy struggled to secure funding due to its small balance sheet and relatively tiny paid-up capital. With TNB having joined the project as a 51% partner earlier this year, the power plant’s development is now expected to proceed smoothly.

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