Malaysia is cementing its position as the dominant player in issuing global and domestic sukuks – helped by the regional energy sector. "Power bonds have accounted for 39% of Malaysia's RM239 billion of infrastructure bond issues in the last decade," said Chong Van Nee, co-head of Infrastructure and Utilities at RAM Ratings.
Looking at tendering data, it becomes apparent that sukuks [Islamic bonds] have become more prominent over the years, with more than 93% of IPP bond issues comprising sukuk after 2000, compared to only 25% before that. "Nearly all of Malaysia's outstanding IPP bonds - amounting to RM28 billion - are sukuk issues," he explained.
"This year we project M$80 billion to M$85 billion [$19.7 billion to $20.9 billion] of new issuance in Malaysia: better than last year," said John Chong, CEO of Maybank Investment Bank, explaining that "a lot of this funding is for infrastructure projects in Malaysia."
"All the rail transits, power plants, ports, road projects, the up-coming pan-[Borneo] highway; they are all going to be funded by sukuk. That will keep the market active through next year."
Sukuks, bonds help finance new-builds
The government is keen for Malaysia to achieve "high-income nation" status by 2020, hence it implemented supportive regulation for the energy sector and underpinned new-build power plants robust Power Purchase Agreements (PPAs). Utilities, meanwhile, are flocking to the local bond and sukuk market to fund new power plant projects.
Targeted financing helps realise new power generation capacity to underpin Malaysia's economic growth. Gas generation is on the rise, as are renewables, as the government aims to diversify the country's energy mix away from more emissions-intensive coal and oil-fired power plants.
New, incentive-based regulation for Peninsular Malaysia has also paved the way towards increased transparency when setting electricity tariffs.
"As generating capacity is expected to grow in tandem with the nation's development agenda, the government's necessary push for competitive bidding and continued subsidy rationalisation are critical for the longer-term wellbeing of the sector," Chong concluded.