Facilitating Sustainable Financing Noraizat Shik Ahmad Securities Commission Malaysia IIFM Seminar on Financial Markets 8 May 2018 1
Malaysia’s capital market is well -positioned to leverage on the growing interest in sustainable financing • Malaysia’s leading position in the Islamic capital market (ICM) gives an edge in attracting sustainable and responsible investment (SRI) funds and to be a regional centre for SRI , as ICM principles are aligned to the principles of sustainable investing. ICM hub 3 rd largest • As the 3 rd largest local currency bond market as a local percentage of GDP in Asia, being a regional SRI hub currency will increase the attractiveness of Malaysian bond bond market in Asia and sukuk market to new category of value investors Effective and issuers. linkage to the capital market • An Malaysia has an established equity market and SRI established products will widen the range of listed products equity available in the Malaysian capital market. market • Strong institutional investors will align financing goals Strong institutional with sustainable economic growth by integrating investors social and environmental considerations into the investment and business decision-making process 2
Well-established ecosystem to support the growth of the sukuk market Tax Framework Legal and Regulatory Framework Tax neutrality provisions Benchmarked against international Tax incentives standards • Issuers Common regulatory approach in • Investors regulating sukuk • Intermediaries Application of common law legal system facilitates issuance of sukuk Shariah Governance Framework Players and instruments National Shariah Advisory Council Diversity of issuers/intermediaries • Local established under the Securities • Foreign Commission Act 1993 • Acts as a reference point for the industry • Multi-lateral institutions (issuer) • Resolutions and rulings provide clarity, Diversity of instruments • Multi-currency certainty and consistency to the industry • Short, Shariah adviser at the industry level medium and long-tenured • Mandated by regulations instruments • Role to advise, review and endorse compliance with Shariah requirements • Registered with the SC 3
Regulatory-based framework for sustainable financing • Sustainable and responsible Renewable energy investment (SRI) sukuk framework Natural Resources and energy introduced in August 2014 to efficiency facilitate financing of sustainable and responsible initiatives. • Proceeds raised from SRI sukuk for Community and Waqf properties the purpose of financing eligible SRI economic /assets projects under four different development categories. Chapter 7 of the Guidelines on Unlisted Capital Market Products under the Lodge Eligible Issuers and Launch Framework i.e. corporations and foreign governments Utilisation of Proceeds must be utilised only for eligible SRI projects Proceeds An independent party may be appointed to undertake an assessment of the Assessment eligible SRI projects Reporting Annual reporting on the status of the eligible SRI projects to the investors 4
Led to the issuance of SRI Sukuk by Khazanah Nasional Berhad Khazanah’s Sukuk Ihsan is the first SRI sukuk to be issued under Malaysia’s SRI Sukuk Framework • Its uniqueness lies in its step-down mechanism based on “doing the best” (in Islam, this is characterised by the highest level of faith known as ‘ Ihsan ’) • Repayment is based on the eligible SRI Malaysian sovereign wealth fund’s project's ability to meet identified key RM1.0 billion Sukuk Ihsan programme performance indicators. If successfully met, First tranche of RM100 million issued investors will not receive the original in 2015 investment amount. Instead, the nominal value Second tranche of RM100 million of the sukuk will be mandatorily reduced in issued in 2017 (including a retail accordance to a pre-defined formula portion of RM5 million) • Proceeds utilised for trust schools It qualifies as a true SRI sukuk as investors programme (educational purposes) forego a portion of their investment when Step-down mechanism for repayment social objectives are achieved to investors based on targeted indicators 5
Green SRI sukuk gaining traction • Quantum Solar Park • Tadau Energy (Semenanjung) Sdn Bhd Sdn Bhd (RM250 mil) (RM1.0 bil) To construct To construct a 50MW three 50MW July 2017 October 2017 solar PV solar PV power plant power plants To fund an To construct 83-storey a 49MW December 2017 January 2018 office space solar PV (Merdeka power plant PNB118 • PNB Ventures • Sinar Kamiri tower) Sdn Bhd Sdn Bhd (RM2.0 bil) (RM245 mil) 6
Prospects for Green SRI Sukuk 130 potential projects: • 111 renewable energy projects (RM1.9 bil) and • 19 energy efficiency projects (RM248 mil) Large scale solar photovoltaic plants (18 companies for 2017 and 2018) with a capacity awarded 402MW 7 New Straits Times, 25 October 2017 – Malaysia’s Green Islamic Sukuk funds green tech projects
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