ASX Renewable Energy Stocks: Could a Sharia-compliant bond help fund our green energy transition?
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Dr Sohel Azad, Deakin University Department of Finance academic, says a Sharia-compliant Islamic bond could offer a solution to encourage much-needed foreign investment in green energy projects.
According to Azad, selling the bonds – known as ‘sukuk’ – on the ASX could be an innovative solution to bring investment certainty back to the energy market and fund ambitious projects like large-scale batteries.
Australia is no stranger to Islamic finance.
There are several non-bank lenders who offer Sharia-compliant home loans, NAB started offering the country’s first ‘halal’ business loan last year, and recently Australia’s first Islamic bank receive a restricted banking licence with plans to open to customers next year.
Yet the investment side of the market remains untapped.
Despite an increase in bilateral relations between Australia and several Islamic nations in recent years, and its own growing Muslim community, Australia is the only Western country in the world with no government or corporate backed sukuk market.
“Sukuk has already been introduced in many international markets and Australia must be quick to take advantage of the opportunities,” Dr Azad says.
“Public pressure to develop large-scale, high-cost, renewable energy infrastructure is huge. Australia has a bold plan to transform its energy market.
“Prime Minister Anthony Albanese plans to legislate ambitious carbon reduction targets, including net-zero by 2050, and the need to strengthen energy generation capabilities has only been exacerbated by the current gas crisis.
“But we simply don’t have the public or private funds in Australia to deliver some of these ambitious projects.
“By selling sukuk on the ASX, and cross listing in other exchanges overseas, the government and corporates can attract more foreign investment in renewable energy projects.”
Azad says there is a massive untapped demand from Islamic investors for sustainable investment opportunities like this that are Sharia compliant, and Islamic finance firms are particularly interested in investing in projects that address the United Nation’s Sustainable Development Goals.
Islamic finance is almost a $3 trillion industry worldwide, largely fuelled by the expansion of sukuk markets.
Sukuk issuance has grown exponentially in the last decade, since being introduced in the Middle East, Malaysia, Indonesia, Hong Kong and Japan, with the market also rapidly expanding into Europe and the US.
A key tenet of Islamic finance is the absence of ‘interest’, as most practicing Muslims believe charging or receiving interest is forbidden by their religion.
Unlike a conventional bond which pays a set amount of interest, sukuk are a type of investment certificate backed by real-world assets, where investors receive a cut of profits gained through sales and trade.
They are structured to avoid high degrees of leverage and speculation, and therefore promote a sounder financial system.
Leading specialist renewable energy, battery storage and micro-grid business, MPower is set to raise $1.7m to fast-track its renewable energy portfolio and drive acquisitions.
The capital raising includes the issue of 55 million new fully paid ordinary shares at 2.4 cents per share to a range of sophisticated and professional investors to raise $1.32m.
The Tag Private Group, MPower’s largest shareholder that is associated with the company’s chairman and CEO, is also supporting the capital raising.
A further $0.38m (15.8 million shares and attaching options) is to be placed to the Tag Private Group on the same terms, subject to shareholder approval at the upcoming EGM.
Melbourne-based boutique investment advisory PEAK Asset Management acted as lead manager to the capital raise.
IRD says it has concluded a market sounding process gauging commercial interest in the longer-term development of Cape Hardy as a green hydrogen hub and industrial precinct.
The 1,200ha gulfside greenfield site at Cape Hardy is wholly owned by Iron Road.
Both WSP Australia and the South Australian Government recognise Cape Hardy as a credible, future green hydrogen production and export hub.
A shortlist of 10 domestic and international green hydrogen proponents have requested to partake in IRD’s formal Expression of Interest (EoI) process following execution of non-disclosure agreements and access to relevant Cape Hardy data room material.
Interested parties primarily comprise globally significant players in the power generation business and emerging energy transition groups with a focus on harnessing quality renewable energy resources for green hydrogen production.
The competitive EoI phase is set to close during quarter four, with the successful proponent or consortium of proponents expected to enter preliminary commercial arrangements with Iron Road.
The EoI phase will be accessible to additional proponents who registered their interest late in the market sounding process.