In mid-2017, Malaysia launched
its first green Islamic Sukuk (bond) to finance environmentally sustainable
infrastructure project.
A Sukuk is an Islamic bond
that can generate returns to investors without contravening Islamic shariah
law, which prohibits interest. A Sukuk is a certificate, with proceeds used to
purchase an asset that is mutually owned by both buyer and seller.
Green Sukuk is similar to
conventional bonds in terms of seniority, rating, pricing and the execution
process. The sole distinctive feature of a Green Sukuk is the use of proceeds,
it must be used only for climate-friendly investments. This includes renewable
energy generating facility, low-carbon transport such as rails, metros, trams,
cable cars, electric or hybrid buses, and low-emission buildings for new
construction.
Picture source: www.sukuk.com
There are four types of Green Sukuk:
-
i.
Use-of-proceeds Sukuk: proceeds from the Sukuk is
earmarked for green projects but are backed by the issuer’s entire balance
sheet.
ii.
Use-of-proceeds revenue Sukuk: proceeds are
assigned to eligible green projects.
iii. Securitised Sukuk: the relevant revenue stream
is generated by a group of green projects or assets.
iv.
Project Sukuk: proceeds are invested in a
specific green project and the investors have direct exposure to the green
project itself.
Beyond the Green Sukuk, Malaysia has introduced
several incentives to complement Sustainable & Responsible Investment (SRI)
Sukuk framework and promote greater utilisation of Green Sukuk as a fundraising
channel: -
i.
Tax
deduction until year of assessment (YA) 2020 on issuance costs of SRI sukuk
approved or authorised by or lodged with the SC;
ii.
Tax
incentives for green technology activities in energy, transportation, building,
waste management and supporting services activities (www.mida.gov.my); and
iii.
Financing
incentives under the Green Technology Financing Scheme (GTFS) with total fund
allocation of RM5 billion until 2022 (www.gtfs.my).
Malaysia’s first Green Sukuk
was issued by Tadau Edra Energy for its 50MW solar project in Sabah. The RM250
million SRI Green sukuk has a AA3 rating, tenure of 2 to 16 years and profit
rate between 4.8% to 6.2%.
Source:
www.sc.com.my
www.bnm.gov.my
www.worldbank.org
http://themalaysianreserve.com
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