Chinese companies are increasingly sourcing funds through Malaysian Islamic bonds or Sukuk in Malaysia. The last two weeks of July witnessed a number of such financial arrangements, including the shoring up of Tadau Energy, a solar energy unit from Edra Power Holdings. The Chinese company announced that a 250 million ringgit Sustainable Responsible Investment Sukuk has been set up. The latter was Malaysia's first green Sukuk. The arrangement suits Malaysia well as it has positioned itself to be a premier hub of Islamic funds.
Government contracts and Islamic finance
Tadau Energy is set up as a project company doing work on a big scale solar project in Sabah state in North Borneo region, Malaysia. The project was started after power purchase agreements were signed with the Sabah Electricity for 21 years. Contracts were signed in December 2016.
As per analysts, Chinese companies' participation in the Islamic finance market of Malaysia is in accordance with the policy instituted by the Malaysian Government to promote the country as a kind of hub for Islamic funds. Khairul Azizi Kairudin, the banking analyst at Hong Leong Investment Bank Research, said that the principal reason why a larger number of Chinese companies go for Sukuk is that a number of international investors regard Malaysia as a kind of Islamic epicenter, the ideal place to go for Sukuk.
Investors from Malaysia can expect larger numbers of Sukuk fund raising in the future. This will be supplemented by a number of other banking solutions. Kairudin believes that Chinese companies will collect funds from the Sukuk market by partnering with local entities so that they can undertake projects within Malaysia. This is applied specifically to construction companies.
Edra Power Holdings was not the first one to go down this path. BEWG Malaysia, the subsidiary of Chinese Beijing Enterprises Water Group, made its Sukuk debut by its issuance of the Islamic medium term notes totaling 400 million ringgit. It was the maiden ringgit Sukuk water infrastructure done by a state owned Chinese enterprise. In an email to a Malaysian media house, John Chong, Chief Executive Officer, Maybank Investment Bank along with Maybank Kim Eng Group, said that his companies are happy with the Malaysian Government's initiatives in this specific space. He expressed confidence that more Chinese businesses will participate in this specific domestic infrastructure space.
For BEWG, the Sukuk proceeds will be utilized to finance the upgradation and refurbishment of water treatment projects. The latter was awarded the contract by the state Government of Malaysia.