A Sarawak controlled company today signed agreements to issue some RM1 billion worth of Islamic bonds to finance the construction of a coal-fired power plant.

The bonds, known as sukuk certificates, will be "fully acceptable to the Middle East market", said RHB Islamic Bank which structured and arranged the financing.

Proceeds from the bonds - to be issued under two programmes of up to RM950 million and RM215 million each - will be used to meet project development and financing costs for the Mukah power plant, RHB said.

Sarawak Enterprise Corporation, a listed utilities company controlled by the Sarawak state government, owns the power plant. When it is completed in two years it will be the largest in the state.

The plant, which will have two generators with a capacity of 135 megawatts each, will provide 15 percent of the East Malaysian state's power needs.

"The two Sukuk programmes, structured along the true blue Syariah principles of Mudharabah and Musyarakah, are the first of its kind being used in a project financing transaction and represent the country's big step toward convergence to the Middle East sharia standards in Islamic financing," RHB said.

Malaysia is a leader in Islamic banking after introducing services in 1983. The country is liberalizing its Islamic financial system and is also promoting itself as a center for education on Islamic finance.

Islamic financial practices ban the payment or receipt of interest or any transactions.