Event Summary (KLCIWM2020) - KL Conference on Islamic Wealth Management & Financial Planning 2020

KL International Conference on
Islamic Wealth Management & Financial Planning

Date    : 21-22 January 2020

Venue : Premiera Hotel Kuala Lumpur, Malaysia

“An international gathering of practitioners, scholars and experts to discuss and share their knowledge, expertise and experience on the principles, instruments and issues related to Islamic wealth management and financial planning to be held at the world’s leading Islamic financial centre…Kuala Lumpur.”

This 2-day conference will explore the key principles and avenues of Islamic wealth management which includes Islamic wealth creation, accumulation, protection, distribution and purification in the Wealth Management Cycle. This conference will enable individuals, investors and corporations to learn and understand more about the Islamic wealth management and financial planning from industry experts with wide spectrum of expertise and will be able to implement them. This conference will also be an excellent platform for networking and exchange of experience, ideas  and outlooks about the industry and services.

KEY FOCUS:

- Islamic Financial Planning & Wealth Management: Principles, Products & Services
- Sharing the Wealth Using Exchange Instruments

- Islamic Funds Management & Investment

- Retirement Planning: Managing Wealth for Golden Years

- Islamic Estate Management (Faraid, Wills, Hibah, Waqf)

- Risk Management and Takaful (Wealth Protection)

- Zakat: Wealth Redistribution and Purification

- The Need For Prudent Financial Management

WHO SHOULD  ATTEND:

- Financial planners

- Wealth advisors

- Financial consultants

- Bankers

- Insurance operators

- Unit trust agents

- Insurance / Takaful agents

- Remisiers

- Lawyers

- Academicians

- Entrepreneurs

- Other professionals

SPEAKERS:

Ahmad Sanusi Husain

CEO & Chief Consultant, Alfalah Consulting

(Certified Islamic Financial Planner)

Others to be confirmed

REGISTRATION:

Early Bird Fee: 

Registration with payment by 23 December 2020

Malaysian   :  RM1,700
International  :  USD700

Normal Fee:

Registration with payment after 23 December 2020
Malaysian  :  RM2,000

International  :  USD800

Special fee for Malaysian university lecturers :  RM1,200 (group discount not applicable)

Fee is inclusive of lunch, refreshments and seminar package only.

Group Discount:

Enjoy 10% discount for 3 or more delegates registered from the same organisation and the same billing source.

DOWNLOAD BROCHURE

REGISTER ONLINE

ORGANISER

VENUE
Grand Seasons Kuala Lumpur, Malaysia

MEDIA PARTNERS

Kuala Lumpur

Malaysia: Ekovest to issue RM3.64b Sukuk for expressway

KUALA LUMPUR: Ekovest Bhd is set to issue the largest ringgit-denominated Sukuk wakalah of RM3.64bil to fund its Setiawangsa-Pantai Expressway (SPE) project.

The toll road project,formerly known as the DUKE phase 3, will cost RM3.9bil with a 53 year concession period with the government.

"The issuance of Sukuk wakalah for the SPE will be among the largest issuance for a new highway construction project as well as among the highest rates AA-sukuk so far in 2016.

"The project will also be the first public private partnership project to use the government's reimbursement interest assistance (RIA) as part of the financing structure," said Minister of Finance II, Datuk Johari Abdul Ghani at the signing ceremony of the Sukuk wakalah for the SPE project.

Part of the funding of the SPE project would come from a RM560mil interest free government RIA and RM850mil equity by Ekovest. 

"Securing the financing for the SPE was the last piece of the puzzle for project. This would be the largest project that Ekovest group will undertake to date," said Ekovest managing director Datuk Seri KC Lim on Tuesday.

AmInvestment Bank Bhd is the principal advisor and lead arranger for the sukuk. The joint lead managers and joint bookrunners are AmInvestment Bank Bhd, CIMB Investment Bank Bhd, Maybank Investment Bank Bhd and RHB Investment Bank Bhd.

(The Star Online / 16 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Maldives spearheads growth of Islamic finance in South Asia

Many identify the Maldives as an idyllic tropical island holiday destination, but little is known about the fact that the country is making plenty of waves in developing its Islamic finance industry towards an investment hub for South Asia and centre for the halal industry in the region. 

As an Islamic country – the 1997 Constitution of the Maldives designates Islam as the official state religion – the Maldives was quick in building up an Islamic finance industry at a fast pace with the long-term objective to become an offshore finance centre for Shariah-compliant investments, mainly in order to diversify its industry away from dominating tourism. To that end, President Yameen Abdul Gayyoom’s government has developed a roadmap to expand Islamic financial services throughout the archipelago and base it on official regulations by the Maldives Monetary Authority. 

According to Aishath Muneeza, Deputy Minister in the Maldives Ministry of Finance and Treasury and chairwoman of the Shariah Advisory Committee of the Capital Market Development Authority Maldives, the share of Shariah-compliant financial assets were already at around 5% of total assets by the end of last year, and increasing.

“The growth of Islamic finance is happening at a very fast pace,” she said, adding that “I hope that we will be able to create an Islamic finance centre and act as the leader for Islamic finance and the halal industry in the South Asia region.”

The advent of Islamic finance in the Maldives dates back to 2003 when the country saw the establishment of its first Islamic finance institution, Amana Takaful Maldives, a fully-fledged Islamic insurance company. But due to little knowledge among the population about the characteristics of Islamic finance at that point of time, it took until 2011 for the first Islamic bank to open, Maldives Islamic Bank, with registered capital of $12mn and the assistance of Saudi-based Islamic Corp for the Development of the Private Sector, or ICD, a unit of the Islamic Development Bank.

But from then onwards, the growth of Islamic finance in the country happened at an impressive speed as awareness among the population about Shariah-compliant banking and investment grew and banks and other financial institutions widened their product offerings and services for both retail and corporate customers.

In 2012, the first Islamic window of a non-banking financial institution, HDFC Amna, a unit of the Maldivian housing finance Corp HDFC, was introduced to offer musharakah-based home financing instruments. 

Other financial institutions followed, namely Alia Investment, a private firm offering financing based on ijarah contracts. Later on, an Islamic finance-based Haj pilgrim fund, Maldives Haj Corp, was launched, and the largest bank and the largest insurer of the country, Bank of Maldives and Allied Insurance Maldives, respectively, opened Islamic finance windows.

To cope with demand for Islamic finance experts, the government asked the International Centre for Education in Islamic Finance, or INCEIF, to start offering Islamic finance courses in the Maldives to expand skills of conventional banking staff, and later on launched the Maldives Centre for Islamic Finance, designed to strengthen the Maldives’ footprint as a hub for Islamic finance and the halal industry in South Asia. Furthermore, halal certification was introduced in 2014 and a halal logo for aquaculture and fishery products created.

Last year, the Ministry of Economic Development started offering Islamic microfinancing through the Bank of Maldives, and earlier in 2016, the government launched Hazana Maldives, a special-purpose vehicle for the further development of Islamic finance. It also created a Shariah advisory board and laid the regulatory framework for sukuk investment, an important move in the economic diversification drive of the tourism-dependent island nation as Islamic bonds normally entice larger funds.

In a first focus, the Maldivian government plans to tap Islamic finance from India via debt sales and deposits. India has a huge Muslim population of 166mn, but so far no Islamic finance industry because of opposition from Hindu lawmakers. Incentives for Indian Muslims to use Islamic finance vehicles in the Maldives instead of Pakistan, Bangladesh or Sri Lanka are that the industry – although having a solid regulation framework – is not as much regulated as those of its bigger rivals in the region and thus is more likely to attract bigger players in the industry.

(Gulf Times / 16 August 2016)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Pak-Qatar Family Takaful opens new branch

Karachi—Pak-Qatar Family Takaful Limited (PQFTL) has inaugurated a new branch in Gulshan-e-Iqbal area of Karachi. This new branch will create great convenience and provide a wide range of Takaful services to a vast number of consumers, living in Gulshan-e-Iqbal and surrounding areas. The inauguration ceremony was graced by senior management officials and prominent professionals.

The Zonal Head of TDT (Individual) Haq Nawaz said that the opening of this new branch is a significant milestone in the progressive journey of the company, as it reflects the company’s customer-centric approach, by enhancing the outreach and ‘accessibility’ for our valuable customers. The opportunity to continue the company’s high quality customer service is very exciting for me, as we continue to expand to new locations all over the country.

Kamran Saleem CFO of PQFTL, while congratulating the team for this successful endeavour said, “With these new branches, we’re not simply expanding our business, but making a commitment towards promoting Takaful among the masses. Our primary aim is to transform the financial industry in Pakistan by offering our highly competitive products and services, while realigning it with Islamic principles.”

The Country-Head of Sales and Deputy Chief Executive Officer of PQFTL Menhas expressed his delight about this wonderful team-effort and said that the key to successfully serving a community and higher cultural values, along with the company’s brand, is to find and nurture the most talented, like-minded Takaful professionals in the region. 

The team has shown remarkable diligence for maintaining the company’s stature as a pioneer and a leading innovator of Takaful in Pakistan. Nasir Ali Syed CEO, Waqas Ahmad Chief Operating Officer, Saqib Zeeshan Head of TDT Corporate and several other senior executives were also present during the grand inaugural ceremony.

(Pakistan Observer / 12 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Under the Radar: Sukuk bonds boom in West Africa

Long under-serviced by Islamic finance, sub-Saharan Africa, and West Africa in particular is seeing a boom in sukuk bonds. West Africa is set to benefit from more intra-regional investment and increased interest from foreign Islamic investors.

The growth of Islamic finance in recent years has seen a rapid increase in the value of ‘Islamic Economy’ – with the global shari’a-approved financial sector projected to be worth $3 trillion by 2018. While Middle Eastern and Asian countries are leading this trend, one region—Sub-Saharan Africa—remains under-serviced.

The growth of sukuk in Africa

Indeed, with over 250 million Muslims, the region is home to a quarter of world’s Muslim population, yet commands a disproportionately small fraction of Islamic financial activity. However, this is changing as sub-Saharan Africa—West Africa in particular—is seeing a marked uptick in Islamic finance, especially in the issuing of Islamic bonds, or sukuk.

Increased GDP growth rates in West Africa have led to higher demand, as nations in this region seek to diversify their lending and borrowing options. Sukuk is increasingly being used to finance development projects, as well as to increase domestic capital reserves and financial inclusion; thus aiding local small and medium-sized businesses.

Furthermore, since speculation is prohibited, and all financial activity must concern real economic activity (with all loans backed by concrete assets), sukuk in theory offers greater stability. Sukuk’s asset-backed investments and risk sharing can offer African nations more forgiving terms and insulate them from the volatility of the wider global economy.

Sukuk issuance boom in 2016

Global sukuk issuance decreased from $101.8 billion in 2014, to $66 billion in 2015. While global uncertainty played a part, the main reason was the cessation of short-term sukuk issuance by Bank Malaysia Negara, the largest issuer, with 50% global market share. This decrease was also due to saturated or unstable traditional markets (Syria, Iraq, Turkey, Libya). Despite these concerns, forecasts for 2016 see an increase to $70 billion, with West Africa playing a significant role.

Significant sukuk use is only now beginning in sub-Saharan Africa. While states such as Sudan and Gambia have issued sukuk in the past, it was in 2014 that Senegal authorized the region’s largest sukuk issuance ($200 million). 2016 has seen a host of new sukuk issuances in West Africa. On August 10th, Togo’s initial CFA 150 billion ($263 million) sukuk offering closed. This comes after Senegal launched its second $263 million round at the end of June.

The trend is likely to continue. Looking ahead, Côte d’Ivoire is planning the second phase of its CFA 300 billion ($526 million) sukuk program. Similarly, Nigeria has convened multi-agency meetings to organize its maiden sovereign sukuk issuance, expected by the end of the year. Furthermore, Kenya and South Africa are planning issuances for 2017.

Islamic investment in West Africa

As a result of sukuk’s unique traits, the IMF is promoting the regional adoption and inclusion of sukuk into African government debt strategies. The region’s Muslim population and development efforts are attracting Islamic financiers from further afield.

Interestingly, in 2014, South Africa became only the third non-Muslim country to issue sukuk; issuing Africa’s first dollar denominated sukuk ($500 million). Pretoria is targeting sukuk’s growing regional influence and is attempting to tap into investment markets in the Middle East and Asia. Specifically, South Africa’s issuance in U.S. dollars was aimed at enticing foreign investors, and is part of its attempt to position itself as a hub for the import of halal products and financial services.

Alongside newcomers to the sector, established players such as Saudi Arabia’s Islamic Corporation for Development of the Private Sector (ICD) are eyeing West Africa as a profitable frontier market. ICD is seeking to expand its business in Africa and has positioned itself as a facilitator of sukuk deals in the region: ICD was the lead arranger for both Togo and Côte d’Ivoire’s sukuk launches.

By 2017 West Africa could be the latest arena for Saudi-Iranian competition, as Iran restarts its sukuk industry following the end of sanctions. Iran has an advantage in the sukuk market in that its entire financial sector is sharia compliant. This is due to the Law for Usury Free Banking Operations, passed in 1983, which in turn makes Iranian Islamic finance compliance a legal requirement, rather than regulatory issue.

That being said, Iran is currently at a severe disadvantage versus Saudi Arabia, in that Iranian law for bids sukuk trading in foreign currencies. This is a major problem if Iran wants to compete in the international sukuk market, which is dominated by dollar transactions. This requirement has effectively shut Iran out of global markets, and its domestic demand is insufficient to raise enough capital for Tehran’s development goals.

Iran’s refusal to use foreign currencies is a two-sided issue with regards to West Africa. Firstly, as noted above, many West African issuers are issuing bonds in West African francs (CFA). This is because issuers such as Senegal are seeking to gain regional market share by promoting intra-regional trading. This is aided by the fact that the CFA is used by eight West African countries, and is guaranteed by the French treasury. The CFA also has a fixed exchange rate pegged at 655.957 CFA to the Euro.

Consequently, Iran’s refusal locks it out of a sizeable regional bloc of more than 105 million potential customers. However, industry experts are optimistic that Iran will change its stance on foreign currency denominated bond trading. Even a partial repeal of the law (say allowing some currencies such as the CFA, but not the dollar), would allow Iran to access the West African market. The widespread use of CFA makes this easier, which could see Iran becoming key partner in promoting CFA issued bonds to circumvent Iran’s own reluctance towards (and Saudi Arabia’s reliance on) dollar denominated bonds in the region.

Increased attention from international investors and growing domestic demand place West Africa in a favourable position heading into 2017. The region is likely to benefit from increased intra-regional investment, as well as better deals as competition between GCC, Iranian and Asian Islamic investors heats up.

Under the Radar uncovers political risk events around the world overlooked by mainstream media. By detecting hidden risks, we keep you ahead of the pack and ready for new opportunities.

(Global Risk Insights / 12 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia's $25 bln pension offshoot set to boost Islamic finance

KUALA LUMPUR, Aug 12 (Reuters) - Malaysia's Islamic finance market is set for a much-needed boost when the country's largest pension fund launches a 100 billion ringgit ($24.9 billion) Islamic fund in January, offering a potential boon for asset managers.

The Employees Provident Fund's (EPF) sharia-compliant pension plan opened to acclaim this week with Malaysians lining outside its offices to invest.

The allocation represents about 15 percent of the EPF's total investments of 681.7 billion ringgit as of March.

Having a standalone pension fund of that size is a rarity in Islamic finance, even for majority-Muslim Malaysia, and it is expected to draw interest from foreign asset management firms with homegrown players also upbeat about the prospects.

"The benefits are multifold, to us and to the industry," said Mohamad Safri Shahul Hamid, CIMB Islamic senior managing director and deputy chief executive officer.

"As EPF allocates more into the sharia fund, surely they would want to progressively deploy more of their funds into sharia-compliant investments."

This would include the market for Islamic bonds, or sukuk, with demand gradually increasing as the EPF hires external firms to manage its bespoke funds, Safri said.

Ancillary businesses such as Islamic securities services would also benefit, as well as Islamic money markets, he said.

The EPF plans to allocate an additional 20 billion to 30 billion ringgit in 2018 to its Islamic fund, depending on the availability of sharia-compliant investments.

The new fund would attract foreign competitors into Malaysia but also widen the opportunities for incumbents, said Mohammad Hasif Murad, investment manager at Aberdeen Islamic Asset Management Sdn Bhd.

"This announcement might be a good value proposition for foreign players to jump on the bandwagon. We expect EPF to continually assess the response from the market and gradually increase the allocation for Islamic in the medium term."

Islamic fund managers screen their portfolios according to religious guidelines such as bans on alcohol and gambling, similar to socially responsible funds in Western countries.

Close to a fifth of total assets under management in Malaysia are now managed this way.

As of December, fund management companies in Malaysia held 132.4 billion ringgit worth of Islamic assets, up 19.7 percent from a year earlier, according to Securities Commission data.

While the benefits of a standalone Islamic retirement fund trickle down to fund managers, the outlook for Malaysia's sukuk market is also improving.

A healthy supply of sukuk is expected for the rest of 2016, on track to exceed the $34.5 billion of sukuk issued in Malaysia last year, CIMB's Safri said.

"We expect an active second half, in terms of total size of the corporate sukuk market, which will grow to $40 billion at the minimum," he said.

Growth in the fixed income market would outpace equities, as investors seek more stable returns, he added.

(Mail Online Wires / 12 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

RAM Ratings reaffirms ratings of Axis REIT Sukuk’s MYR 110.0 million first Sukuk

With the revision of RAM’s stressed refinancing rate to 8.5 per cent (from 10.0 per cent), the stressed debt-service coverage ratios (DSCRs) have increased substantially. Nevertheless, the ratings remain constrained by the loan-to-value (LTV) ratios, which are still consistent with our benchmarks for the relevant ratings.

The reaffirmation is premised on the overall stable net property income (NPI) of the portfolio, supported by the underlying properties’ strategic locations, longer-than-average lease maturities and healthy demand for the portfolio’s assets due to the shortage of comparable properties. ARSB is a special-purpose vehicle set up by Axis REIT as a funding conduit for its perpetual Islamic MTN Programme of up to MYR 3.0 billion (the Sukuk Programme). The First Sukuk – the first issuance under the Sukuk Programme – is backed by a portfolio of three industrial and industrial-office mixed properties and one retail property, i.e. Axis Steel Centre (ASC), Axis Vista (AV), Bukit Raja Distribution Centre and Tesco Bukit Indah.

The portfolio NPI of MYR 20.5 million in 2015 remained in line with our assumed NPI of MYR 20.0 million. Despite the present void at AV due to the recent departure of one of the portfolio’s six tenants (which accounted for 3.5 per cent of the portfolio’s NLA and 5.3 per cent of its revenue in 2015), we expect the portfolio’s stabilised annual NPI to remain in line with our initial assumptions. The average rental rates of the assets are still aligned with market rates while the portfolio’s adjusted capital value shows a discount of 31 per cent to its market value. Correspondingly, the cumulative LTV ratios of 43.7 per cent, 46.0 per cent, 48.3 per cent and 50.6 per cent coupled with the revised DSCRs of 2.5 times, 2.4 times, 2.2 times and 2.1 times (from 2.1, 2.0, 1.9 and 1.8 times) correspond to the respective AAA, AA1, AA2 and AA3 ratings of the Class A to Class D Sukuk.

We note overdue rentals of up to three and five months from two tenants in 2015 and 1Q 2016. However, these issues have been largely resolved – one tenant has caught up on its payments while the security deposit and auction proceeds have been used to offset the overdue rentals from the other tenant at AV. A replacement is currently being sought for the vacant space at AV. Our sensitivity analysis incorporates these factors as the basis for our reaffirmation. We have not accorded any benefit to the new lease agreement pertaining to ASC, which is currently in an advanced stage of negotiations.

The ratings are, however, moderated by limited asset diversity and significant tenant-concentration risk, as the portfolio only contains industrial-related properties, and three of the four Secured Properties are single-tenanted. These factors expose the transaction to the cyclicality of the industrial property segment and the risk of significant income loss should any of the tenants’ relocation result in protracted vacancies. Nonetheless, the fixed long-term tenancies are expected to provide cashflow visibility over the medium term. In fiscal 2015, the collective NPI of the two Secured Properties with fixed long-term tenancies amounted to almost 2.50 times of the transaction's profit obligations, and contributed close to 60 per cent of the portfolio’s rental revenue.

The ratings are also underpinned by structural features that enhance the liquidity and security of the transactions, e.g. minimum finance service coverage ratio (FSCR) requirements at the levels of both the Issuer and the sponsor, as well as other trigger mechanisms to accelerate recovery via proceeds from the disposal of the underlying portfolio. We note that the respective FSCRs of the Issuer vis-a-vis the First Sukuk and Axis REIT remained healthy at 4.04 times and 3.37 times (after adjusting for deposits related to acquisitions) as at end-2015.

(C P I Financial / 12 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Kenya: Lenders want new law for Islamic financing

Experts want Central Bank of Kenya to set separate regulations for Islamic banks to avoid operation and auditing challenges.

Prof Abdullatif Essajee, currently the CEO and Islamic Finance lecturer at Vision Institute of Professionals, has said Islamic banking has key differences from conventional banks and the two cannot be effectively regulated using the same framework.

 Former Managing Director at First Community Bank (FCB) and now a director at the same bank, Essajee said that most of the time, the external auditors differ with Islamic banks on presentation of several transactions in financial books.

 “We have reporting standards for Islamic banks but because the regime does not allow that, we have not fully embraced the substance of Islamic banking. 

The Islamic standards cannot change the fundamentals of reporting but could have enhanced the quality of reporting,” said Essajee. For instance, Islamic banks, where charging interest is prohibited, avoid terminologies such as interest income and instead go for financing income yet in their books, they are forced to use the term. 

The matter has been complicated by absence of CBK Sharia Supervisory Board that is supposed to keep in check the activities of Islamic banks. Essajee pointed out countries like Malaysia, where each bank has its own Sharia-compliant board that is answerable to a similar board by central bank.

In Kenya, despite the first Islamic product coming to the market a decade ago, the audit practice leans to the practices of conventional banks. 

According to Essajee, most of the high non-performing loans displayed on the financial statements of banks offering more Sharia-based loans, are due to differences in the practice of Islamic products and conventional products. 

“For example, in conventional banking, when financing a construction, banks can demand for payment even before construction is up. That cannot happen in Islamic banks yet when auditors come, they say ‘You issued a facility at this time and it is now almost 90 days and there is no payment so we need to downgrade it,” he explained. 

During his helm at FCB, he added, not so many auditors who came for the auditing process could succeed in borrowing from both conventional and Islamic practices. Under Islamic banking law, most lending is directed to a specific project and is premised on utmost good faith.

 Therefore, where the borrower delays paying yet he invested in a project he or she pre-agreed with the bank and is yet to be paid, Islamic banking laws cannot move to penalise the borrower.

 “It is not a matter of being soft, it is being ethical. If I (Islamic bank) gave you money to build road and the payer is another person and you haven’t been paid, how do I come to touch your property yet we need to work together to get paid?”

 he asked. This may shed light on the increased gross non-performing loans (NPLs) in some lenders that have embraced Islamic products. Half-year results released by NBK, which is one of the lenders with Islamic products, show that gross NPLs moved from Sh16.9 billion to Sh27.3 billion in just three months.

(Standard Digital / 12 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: MARC affirms rating on Kimanis Power RM1.16b Sukuk

KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has affirmed its AA-IS rating on Kimanis Power Sdn Bhd's (KPSB) RM1.16bil Sukuk programme with a stable outlook. 

 

It said on Wednesday the affirmed rating was backed by the favourable terms of KPSB’s 21-year power purchase agreement (PPA) with the offtaker, Sabah Electricity Sdn Bhd (SESB) under which demand risk is transferred to the offtaker. 

SESB is 83% owned by power giant Tenaga Nasional Bhd (TNB), which has a senior unsecured debt rating of AAA/Stable. 

“The affirmed rating incorporates Kimanis power plant’s commendable operating performance in meeting PPA requirements in relation to the heat rate and unscheduled outage limit. 

“The rating also considers Petronas Gas Bhd’s 60% ownership of and substantial involvement in KPSB, the use of standard and well-proven technology and the gas sale agreement (GSA) with Petronas Gas’ parent Petroliam Nasional Bhd (Petronas) until June 2029 which mitigates fuel supply risk. 

 

KPSB owns the 285-megawatt (MW) combined-cycle gas-fired power plant at Kimanis Bay, Sabah. 

Kimanis O&M Sdn Bhd handles the operations and maintenance of the Kimanis power plant. General Electric Company (GE) is responsible for maintaining the gas turbines under a long-term contractual service agreement.

MARC said the Kimanis power plant achieved a lower load factor than the initial projection of 90% since achieving its full commercial operations date (COD) in November 2014 due to the excess capacity on the west coast of Sabah. 

Hence, KPSB had revised its load factor assumptions to 60% for the period between 2015 and 2017 in the revised budget. 

In 2015, the plant’s average load factor was 64.7% (2014: 51.2%). Its energy payment (EP) receipts of RM125.9mil were 16.4% above the budgeted amount in 2015. 

KPSB’s actual capacity payment (CP) of RM201.6mil was in line with the budgeted amount following the resolution of gas supply issues in early 2015. 

The plant’s average availability stood at 95.4% during the period under review. MARC  noted the plant’s average actual heat rates were within the PPA heat rate requirement and KPSB has achieved full pass-through of fuel costs in its first full year of operations.

KPSB recorded higher electricity sales of 1,519.6 gigawatt hours (GWh) in 2015 (2014: 967.0 GWh), reflecting the full commercial operations of its three generating blocks since November 2014. 

Operating profit margin was 26.8% on the back of electricity sales of RM200.1mil and operation cost of RM166.8mil. Fuel cost per unit generated improved to 5.94 sen per kilowatt-hour (kWh) (2014: 9.82 sen/kWh) due to the lower usage of distillates. 

Net cash flow improved to RM40.2mil (2014: deficit of RM299mil) as the plant incurred lower capital expenditure of RM2mil (2014: RM318.7mil). 

Cash balance stood at RM214.3mil in 2015 while KPSB’s leverage ratio improved to 1.27 times following the repayment of its Series 2, Tranche 1 sukuk amounting to RM35mil in December 2015. 

“Going forward, MARC expects KPSB’s leverage ratio to decrease progressively with the accumulation of retained earnings and paring down of the outstanding rated sukuk.

“Under Kimanis’ updated financial projections, KPSB’s debt servicing capacity remains adequate with minimum and average finance service coverage ratios (FSCR) of 2.24 times and 3.35 times respectively during the Sukuk tenure. 

“The projections are premised on the plant load factor of 60% which will progressively step up to 90% beginning in 2020,” it said.

MARC’s sensitivity results show that KPSB’s cash flows are sensitive to reductions in CP and higher-than-projected O&M costs. 

KPSB can withstand an increase in O&M costs by 73% before breaching its FSCR covenant in 2026. 

“MARC wishes to highlight that the cash balance brought forward from 2015 amounting to RM214.3mil is sufficient to meet the financial obligations in 2016 totalling RM154.0mil.

“The stable rating outlook on the sukuk programme reflects MARC’s expectations that the power plant’s cash flow generation will be in line with projections. 

“Conversely, the rating would come under pressure if the plant’s operations underperform significantly, leading to a weakening of KPSB’s liquidity position, and/or if the offtaker’s credit profile deteriorates,” said MARC.

(The Star Online / 10 August 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com