Closing the Financial Close for Large Scale Solar Project

In Malaysia, Large Scale Solar (“LSS”) is a competitive bidding programme by the Energy Commission to drive down the Levelized Cost of Energy (“LCOE”) for the development of large scale solar photovoltaic plant. Through the LSS scheme, the LSS developers (“developers”) who are qualified and succeeded in the bidding will enter into a contract with the Single Buyer (Tenaga Nasional Berhad (“TNB”) or Sabah Electricity Sdn Bhd (“SESB”)) under the Power Purchase Agreement (“PPA”) to develop, maintain and operate the solar photovoltaic energy generating facility for a fixed term and energy price as stipulated under the Key Principles of LSS Framework in Guidelines on Large Scale Solar Photovoltaic Plant For Connection To Electricity Networks by the Energy Commission (“the Guidelines”). 

After the signing of PPA between the Single Buyer (a department within TNB who is authorised to conduct electricity planning and manage electricity procurement services pursuant to the Electricity Supply Act (ESA) 1990 and defined in Guidelines for Single Buyer Market (Peninsular Malaysia)) the developers must fulfil all condition precedents that has been agreed by the parties and one of the conditions is to achieve financial close.

(For the convenience of reading, LSS developer will now be referred to as Solar Power Producers (SPPs)



1. What is Financial Close?

Financial Close is a condition precedent in the PPA that refers to the date where all financing documents have been satisfied by the SPPs. Financing documents can range between loan agreements (including agreements for any subordinated debt), notes, bonds, indenture, guarantees, security agreements, hedging agreements and any other documents relating to the financing or refinancing as well as security arrangements for developing the Large-Scale Solar Photovoltaic Plant (the “Project”) which have been or are entered into by the SPPs and the financing providers.

According to the Guidelines, SPPs are given the timeline of 12 months from effective date of letter of acceptance of offer to achieve financial close and this is normally referred to as the Financial Closing Date in the PPA.

If the SPPs failed to comply with Financial Closing Date in the PPA, it would hinder the commencement of Initial Operation Date (the date on which the Net Energy Output is first generated and delivered from the facility to the Distribution Network) and thus allowing the Single Buyer to terminate the contract as the SPPs have failed to meet condition precedent of the Financial Closing. However, negotiation between TNB and SPPs can be done to obtain extension of time if there is a force majeure events or change in law, as provided under Clause 18.1 and Clause 22.1 of the Draft PPA that is provided in the Guidelines.  Under Clause 18.3 of the Draft PPA, SPPs are required to give TNB a written notice of the force majeure events, including full information and the actions as well as the time estimated to be necessary to resume the SPPs’ obligation. In the recent Covid-19 outbreak and nationwide implementation of the Movement Control Order, we have seen many contractors and plant owners have submitted extension of time due to the force majeure. On the other hand, if SPPs are relying on Clause 22.1 of the Draft PPA, SPPs are required to submit to TNB with a copy to Energy Commission the change in law that have affected the SPPs abilities to comply with the PPA and upon Energy Commission approval, adjustments will be made to the PPA.

Another option for the SPPs in the event of its inability to achieve financial close is to transfer or assign the project to a third party, subject to the written consent by TNB and Energy Commission which is laid down in Clause 23.1 (a) of the Draft PPA.

Based on the above discussion, it is therefore important for the SPPs to always be aware of the duration provided in the PPA to achieve Financial Close.



2. How can SPPs obtain Financial Close?


a. Investment from third-party

The first option for SPPs to achieve Financial Close is by way of investment from a third-party. In consideration of investment from any third party, the SPPs can allot its Redeemable Convertible Preference Share (“RCPS”) to the investors. The RCPS would contain the rights of the parties attached to it including the fixed repayment of principal by way of dividends that can be set upon the facility achieving its Commercial Operation Date and generating power to the Main Grid.

However, the disadvantage of RCPS is that preference shares tend to incur a fixed dividend. As such, the dividend needs to be paid to the shareholders without taking into account the volume of profit the SPPs have generated in the given year. In addition to that, in a case of cumulative preference shares, if the SPPs are unable to distribute the dividend for the current year, the SPPs would be burdened by the dividend payments of the following year as the dividends is accumulated and carried forward.


b. Borrowing from Financial Institution

The second option for SPPs are through borrowing from financial institutions. In Malaysia, financial institutions have started to take part in financing the green technology, recognising the country’s aspiration to transition into a low-carbon and climate-resilient economy. 

Among the forms of financing that financial institutions can offer for the SPPs is conventional financing. In 2021, we have seen a lot of financial institutions has started to promote green financing.  Green financing is a term used to label activities related to the two-way interaction between the environment and finance and investment. SPPs who relies on conventional financing would be able to achieve Financial Close by obtaining long term loans for the development of the solar facility with an interest rate that is fixed between the financiers and SPPs.

The government also recently announced Green Technology Financing Scheme 3.0 (“GTFS 3.0”) as part of its agenda to support Sustainable and Responsible Investment (“SRI”) as well as to drive free and sustainable standards in Malaysia. GTFS 3.0 with a budget allocation of RM2.0 billion until 2022 and no cap on financing tenure and up to RM500 million of financing amount per group of company may be utilized by the SPPs. However, it is important to note that GTFS 3.0 does not provide any interest subsidy as compared to GTFS 1.0 and 2.0 which offers 2% interest subsidy per annum for the first 7 years.  In view of this, GTFS may be considered as a soft loan supported by the government and is to be treated similarly to normal loans, where the borrower must repay the loan to the bank throughout the tenure period.

The disadvantage of conventional loans for SPPs is the difference in the rate of interest in loans by financial institution. As the demand in green financing increases, financial institutions might not be as generous as to provide similar interest rate of the previous LSS projects. In addition, the scheme or incentives provided by the government also changes from time to time and cannot be considered as a permanent solution for SPPs.

Besides conventional financing, SPPs can also opt for bond issuance or Sukuk (Shariah Compliant). In 2017, Malaysia launched its first Green Sukuk in the world in which the proceeds are used to fund environmentally sustainable infrastructure projects, such as renewable energy facilities. Green Sukuk is specifically introduced in line with the objectives of shariah to protect the environment. In April 2018, UiTM Solar Power Sdn Bhd issued a Green SRI Sukuk worth RM240 million to finance the development and operation of the Large-Scale Solar (LSS 1) 50MW utility solar power plant in Gambang, Pahang.

The Security Commission (“SC”) has also on 21st January 2021 renamed and expanded its Green SRI Sukuk Grant Scheme to SRI Sukuk and Bond Grant Scheme which is applicable to all sukuk issued under the SC’s SRI Sukuk Framework or bonds issued under the ASEAN Green, Social and Sustainability Bond Standards (“ASEAN Standards”). The benefit of the scheme to SPPs is that it allows 90% of claim amount of the actual external review cost, subject to a maximum of RM300,000.00 and 5 years income tax exemption from Year of Assessment 2021 until 2025.


c. Moneylending

Moneylenders in Malaysia are governed under the Moneylenders Act 1951 (“MA 1951”) and administered by the Ministry of Housing and Local Government (“KPKT”) which requires moneylending businesses to obtain license in order to provide moneylending services as per Section 5 of the MA 1951.  SPPs and moneylenders are also required to enter into an agreement under Schedule J or K of the Moneylenders (Control and Licensing) Regulations 2003. In terms of interest, Section 17A(1) of the MA 1951 stated that the interest for a secured loan shall not exceed twelve percent (12%) per annum and eighteen percent (18%) per annum for unsecured loan. Moneylending agreement that exceeded the amount of interest shall be void and have no effect and not enforceable, as per Section 17A(3) of the MA 1951. Having moneylenders to finance the project would allow SPPs to negotiate with the moneylenders in regard to the interest rate, mode of repayments as well as type of securities. In 2020, ManagePay Resources Sdn Bhd, a wholly owned subsidiary of ManagePay Systems Bhd (MPay) signed a Letter of Offer (LO) issued to Coral Power Sdn Bhd for the financing of LSS 2 9.99MW project located at Manjung Perak.  The financing offer was structured with an 18-month guaranteed bridging loan and will convert into a full eight-year term loan thereafter.

One of the disadvantages of moneylending for the development of LSS is the high interest rate range of the moneylending agreement as stated in Section 17A of the MA 1951. Although SPPs could provide security over the project, the interest rate of moneylending is still the highest in comparison to other means of financing.


d. Future alternative fundraising mechanisms for LSS

Initial Exchange Offering & Security Token Offerings

In addition to all of the above methods, SPPs may consider closing the Financial Close   through Initial Exchange Offering (“IEO”) and Security Token Offering (“STO”). IEO is a sale of digital assets that takes place through an exchange while STO allows retails or institutional investors to subscribe for “tokens” that were created by the issuer. In Malaysia, the SC has issued a Guidelines on Digital Assets (Digital Asset Guidelines) to regulate the issuance of digital assets for fundraising through IEO platforms as well as requirement for digital token offering. The guidelines provide the requirement, criteria as well as obligation of IEO operators and issuers of digital assets.

The SC has introduced several safeguard measures for investors. As an example, the funds raised from an IEO will be placed under a trust account maintained with a licensed Malaysian financial institution. In addition to that, the funds will only be released to the company or IEO issuer only when the targeted amount sought to be raised has been met and there are no material change relating to the IEO or the issuer during the offer period. It must also be noted that the guidelines require the issuer to only carry out offering of digital tokens through an IEO platform.

In terms of the limit of the fund that can be raised by the issuer, the Digital Asset Guidelines states that issuer can raise a capital of 20 times its shareholders’ funds within any continuous 12-month period, subjected to a ceiling of RM100 million. In terms of investments limit, the Digital Asset Guidelines provides as follows:-

  • Sophisticated Investor (as listed in Part I of Schedules 6 and 7 of the Capital Market and Services Act 2007) – no restriction on investment amount;
  • Angel Investor (refers to individual who tax resident in Malaysia, has total net personal assets exceed RM3 million, gross total annual income not less than RM180,000 in the preceding 12 months, or jointly with his or her spouse, has a gross total annual income exceeding RM250,000) – a maximum of RM500,000 within 12-month period;
  • Retail Investor – a maximum of RM2,000 per issuer with a total investment limit not exceeding RM20,000 within a 12-month period.

In application of the digitalization of assets in the LSS projects, SPPs are able to develop a security token by tokenizing its assets at hand such as the land or the concessions that are entered with the Single Buyer and carry out offering through an IEO platform to invite investors to subscribe through proper legal documentation along with the return rates.

Interest Scheme, Equity Crowdfunding & P2P Financing

Interest Scheme is an alternative method of funding beyond the traditional financing options in which interest scheme involves the pooling of a financial contribution from the public in exchange for an interest in a particular scheme. Interest Scheme is governed under the Interest Schemes Act 2016 as a result to address the problem of irresponsible business operators who actively offer interest to the public to achieve financial contribution in unregulated environment.  According to the Interest Schemes Act 2016 Practice Directive No. 1/2019, the period for validity of prospectus or product disclosure of the interest scheme can be valid for a period of six (6) months after its approval by the Registrar with the option to renew subject to eligibility.

Interest Scheme can be beneficial to the SPPs due to its unrestricted funding limit which allow SPPs to obtain funding for the construction of the Project. However, it is important to note that the Interest Scheme is only available for public company and application for the scheme is subjected for approval by the Companies Commission of Malaysia as the regulator.

Another alternative financing option that may be utilized by the SPPs is P2P financing.

Regulated by the Securities Commission through the Guidelines on Recognized Markets, P2P financing has no investment limit on a sophisticated investor and angel investor, despite P2P operators are encouraged to advise retail investors to limit their investment exposure in P2P to a maximum of RM50,000 at any point of time.

As popularity surge in renewable energy in the country, SPPs could soon consider closing financial close by way of P2P financing. In view of those alternative financing mechanism for LSS, SPPs also need to consider various factors that may determine their profit margins. We have seen that the bidding tariffs for SPPs have reduced dramatically from LSS 1 with the lowest bid was RM 0.39/kWh while LSS 4 with as low as 0.1399/kWh. With the increasing cost of material and construction of LSS as well as ongoing power shortages in China (as the biggest manufacturer of solar related equipment) will undoubtedly disrupt the financial projection of the SPPs.



  • Guidelines On Large Scale Solar Photovoltaic Plant For Connection To Electricity Networks, Energy Commission.
  • Guidelines For Single Buyer Market (Peninsular Malaysia)
  • Moneylenders Act 1951
  • Guidelines on Digital Assets, Securities Commission Malaysia
  • About Interest Scheme, Companies Commission of Malaysia,dynamic%2C%20business%20continues%20to%20evolve.
  • Interest Schemes Act 2016 Practice Directive No. 1/2019