MARC Ratings has affirmed its AA-_IS rating on SHC Capital Sdn Bhd’s RM80.0 million issuance under its RM200 million Islamic Medium-Term Notes (Sukuk Wakalah) Programme with a stable outlook. There is no further drawdown expected, but any new drawdown will require a re-assessment of the rating.

SHC Capital is a wholly-owned funding vehicle of Tunas Cool Energy Sdn Bhd (TUNAS), a subsidiary of Sin Heng Chan (Malaya) Berhad. TUNAS owns a district cooling system (DCS) plant and distributes chilled water for air conditioning to four higher learning institutions within the Pagoh Education Hub (PEH) in Johor.

The rating incorporates TUNAS’ stable and predictable cash flows. Its 20-year, take-or-pay contract with Sime Darby Property Selatan Satu Sdn Bhd (where the ultimate obligor is the government), which also contains a feature for the pass-through of energy costs, provides cash flow visibility. Revenue is set at a minimum of approximately RM15.02 million per year to 2037. The company generates around RM7.0 million to RM9.0 million of operating cash flow a year, sufficient to meet SHC Capital’s debt service under the rated programme.

The rating is, however, moderated by a potential delay in receivable collections. Nevertheless, MARC Ratings has observed timely cash collections to date within the 30-45 days credit terms given. There is also exposure to contract termination risk although this is considered low given TUNAS’ strong operating track record of more than five years providing the essential cooling service to PEH. The underground pipe network connecting the DCS plant to the buildings within PEH serves as a strong barrier to entry. Average projected financial service cover ratio (FSCR) through 2037 is 2.2x with a minimum of 1.8x under MARC Ratings’ sensitised scenario assuming a 90-day collection cycle and certain stress to operating expenses.