Ray of sunlight
Edra Solar reenergized Malaysia’s capital markets for solar power projects with a small but hugely popular M$245m (US$59.5m) sustainability sukuk, the first Malaysian solar power project financing to include a social element.
Edra Solar, owned by China General Nuclear Power, combined green and social features in the ASEAN Sustainability SRI Sukuk, which meets both regional and global standards on green, social and sustainability bonds. RAM Consultancy provided a second opinion on its framework.
The bond refinanced a shareholder loan used to develop a 50MW solar plant in Kuala Ketil, which includes the cost of a large buffer zone around the project that has been allocated to the local community for the cultivation of pineapples and other crops. Local farmers will be able to use the land free of charge under a profit-sharing arrangement, encouraging entrepreneurship and responsible growth under the UN’s Sustainable Development Goals.
The timing of the deal was crucial. Edra’s plant started operations ahead of schedule in February and performed well, with output exceeding earlier projections, but the company decided to wait for investor appetite to return after problems with another project had soured sentiment.
Quantum Solar Park Semenanjung sold M$1bn of bonds to fund three solar plants in October 2017 but was hit by lengthy construction delays, putting investors off the sector. Edra Solar decided to first use a shareholder loan to build the plant, then to refinance with longer-dated project bonds after the plant started generating revenue.
When the last of the Quantum plants achieved completion in July this year, investors started to put that saga behind them. Edra Solar saw an opening, filing its bond issuance plans with Malaysia’s Securities Commission followed by roadshows in September.
Edra opened books a month later with a price discovery process to test demand and optimise funding costs, a first for a solar sukuk. The execution strategy paid off, with the deal more than 11 times subscribed from a wide range of participants that included insurance companies, asset managers and – for the first time in a Malaysian solar power financing – high-net-worth investors. Rated AA2 by RAM, the deal comprised eight tranches with tenors of one to 18 years at yields of 3.95%–5.05%, all priced well inside initial guidance.
The deal restored investors’ confidence in the solar sector and opened the door for more solar projects to come to the ringgit bond market next year under the third phase of the government’s large-scale solar procurement programme.
OCBC Al-Amin Bank was principal adviser and lead arranger as well as joint lead manager and bookrunner with Standard Chartered Saadiq.