Tanjung Bin Power Plant

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Seeking diversification in its generation capacity, Malaysian private power developer Malakoff Bhd. completed the acquisition of a 90% stake in SKS Power on 28 October 2003 for M$835 million (US$219.7 million) using part of the proceeds from a M$1.85 billion bond issue. SKS Power, originally owned by Northern Power, had been awarded the license to design, construct, operate and maintain a 2,100MW coal-fired power plant in Tanjung Bin, Johor for a period of 25 years. The acquisition was successfully completed in less than three (3) months after the signing of the Share Sale Agreement on 7 August 2003 and a week after shareholders; approval was received on 21 October 2003. The power plant was expected to be fully completed in 2007 and to be the biggest coal-fired power plant in the country. Tanjung Bin was to assist in developing Southwest Johor as a transshipment hub. SKS Power had signed a 25-year power purchase agreement (PPA) with the majority state-owned electricity utility Tenaga Nasional Berhad (TNB) on 25 July 2002. In its PPA, only 85% of the cornerstone tariff (CRF) was guaranteed; the remaining 15% was to be paid according to dispatch. The engineering, procurement, and construction contract was awarded to a consortium comprising Japan's Sumitomo Corporation and the local Zelan Holdings in early 2003. Preliminary works on the plants construction had commenced in February 2003, while the plants detailed engineering design began in August 2003. The plant was to consist of three (3) generating units of 700MW each. Commissioning of the first unit was scheduled for 31 August 2006, the second unit for 28 February 2007 and the third unit for 31 August 2007. The plant was to include Electrostatic Precipitators to prevent ash from being emitted into the atmosphere. It was also to have Flue Gas Desulphurisation facilities to keep the sulphur dioxide (SO2) level to below the limit set by the government. The estimated M$7.8 billion ($US2.05 billion) project achieved financial close on 11 November 2003. SKS Power had successfully raised up to RM5.6 billion ($US1.47 billion) via the issuance of an Istisna Medium-Term Notes Programme to finance the construction of the power plant. A group of eight banks was mandated to arrange the financing in February 2003 including the local Malayan Banking, Aseambankers, Bumiputra-Commerce Bank, Commerce International Merchant Bankers, KAF Discounts, Bank Islam Malaysia and Bank Muamalat Malaysia, and Singapore's United Overseas Bank. The consortium agreed to issue the bonds in five tranches with a tenor of five to nine years. In February 2012, Malakoff Corporation, via its subsidiary Tanjung Bin Energy Issuer Bhd, reached financial closure on an expansion of the Tanjung Bin power plant with 1,000 MW. The project also signed a supply-agreement with TNG Fuel Services, for 25 years in December 2011. The project was financed with a combination of senior and junior debt facilities, comprising of Islamic bonds and loans denominated in Malaysian ringgit as well as US dollar. The senior debt included a RM3.29 billion serially-amortising senior secured Islamic bond (Sukuk) in traches with maturities between 5-20 years and rates between 4.45-6.05%, a US$400 million term loan (15 years, offshore) and a RM700 million term loan (12 year). The junior debt comprised of equity loans of RM1.3 billion (bridge). HSBC was the financial adviser. The Sukuk loan was arranged by HSBC and Maybank (Lead Arrangers), and CIMB, Affin, Bank Muamalat, OCBC, RHB. The domestic loan (RM700MM) was arranged by Maybank and RHB. The junior debt was arranged by Affin, CIMB, Maybank and RHB. The output was expected to be sold to Tenaga Nasional Bhd, under a 25 year PPA. Maintenance was to be done by Teknik Janakuasa Sdn Bhd, a wholly-owned subsidiary of Malakoff. Alstom was to supply the supercritial-coal fired power plant under an EPC contract valued at EUR830 million, jointly with its partners Mudajaya and Shin Eversendai. Commissioning was expected in 2016. The project received a AA3 credit rating from Rating Agency Malaysia, based on the size and experience of Malakoff (owning 25% of the Malaysia generating capacity), and the off-take and fuel supply agreements with TNB - even without a cover. Project Finance Magazine, DEAL ANALYSIS: Tanjung Bin, 2 April 2012 Bernama Daily Malaysian News, Malakoff signs RM.5 BLN financing agreements, 29 february 2012.