KUALA LUMPUR : YTL Power International Bhd is looking at the option of funding its US$2.5 billion Tanjung Jati A power project in Indonesia through the local bond market early next year.
The onshore sukuk will be the first issuance which involves financing a major power project that is located overseas, said the group's managing director Datuk Yeoh Seok Hong.
Yeoh told the New Straits Times that YTL Power was also looking at other financing options including export credit financing and US dollar bond markets.
"The sukuk market in Malaysia is very established. Sukuk has been successfully tapped for a long time to finance major infrastructure projects in Malaysia. This will be the first time YTL Power is using sukuk as a financing instrument to fund a project outside of Malaysia.
“It is something that will be very beneficial to the Malaysian financial markets and will be a gamechanger; establishing Malaysia as the international hub for infrastructure financing," said Yeoh.
"We are in discussions with several banks and expect financial closure in June 2020. With President Jokowi winning his second term, his administration is encouraging foreign investments into Indonesia.
“Things are progressing very well and construction will commence immediately after," he said.
YTL Power has awarded the power plant construction contract to a group comprising Harbin, China's top EPC contractor, and General Electric, a world leader in power technology.
Tanjung Jati A is a 1,320MW (2 x 660) ultra-supercritical coal-fired power plant in Cirebon, West Java. Once completed, it will be the most efficient coal-fired plant in Indonesia.
Yeoh said YTL Power had to date invested US$90 million in the project and the major part of it was to acquire 230 hectares of land for the development.
The first unit is scheduled to commence operations in January 2024, with the second unit 12 months later. The plant will operate under a 30-year power purchase agreement (PPA).
YTL Power's 80 per cent-owned unit PT Tanjung Jati Power Co Ltd had on 21 December 2015 entered into a PPA with PT PLN (Persero) to restate and amend the agreement originally entered into on April 2 1997 for the construction of the plant and the sale of energy and capacity from the facility to PLN.
Yeoh said the power plant is expected to contribute to the group's earnings as early as 2024.
"The internal rate of return (IRR) is estimated at 12 per cent to 13 per cent," said Yeoh, adding that YTL Power would also be involved in the operation and maintenance for the power plant.
The infrastructure group recorded a net profit of RM67.36 million in the first quarter ended September 30, 2019 (1QFY20).
Revenue was RM2.96 billion, with most segments achieving higher contribution during the quarter, except for the telecommunication business.
The Tanjung Jati A project is YTL Power’s second investment in Indonesia.
In 2004, YTL Power purchased a 35 per cent stake in the 1,220 MW Jawa Power project held through its 57.14 per cent subsidiary YTL Java Power Holdings BV.
"Jawa Power is one of the best plants in Indonesia and is doing very well. The plant will continue to supply power to PLN until 2030," said Yeoh.
Besides Indonesia, YTL Power owns stakes in Wessex Water Limited in the UK, YTL PowerSeraya Pte Limited in Singapore, and ElectraNet Pty Ltd in Australia.