MARC Ratings has affirmed its AA-IS rating on SHC Capital Sdn Bhd’s RM80 million issuance under its RM200 million Islamic Medium-Term Notes (Sukuk Wakalah) Programme with a stable outlook.
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 continues to incorporate TUNAS’ stable and predictable cash flows supported by its 20-year contract with Sime Darby Property Selatan Satu Sdn Bhd, where the ultimate obligor is the government via the Ministry of Education. The contract includes minimum take-or-pay and energy cost pass-through mechanisms, effectively eliminating demand risk and underpinning cash flow visibility. The take-or-pay structure guarantees a minimum annual revenue of around RM15.02 million through 2037, producing a stable operating cash flow of around RM7.0 million to RM9.0 million a year, sufficient to meet SHC Capital’s debt service under the rated programme.
The rating is, however, moderated by the potential for administrative issues delaying the collection of receivables. Nonetheless, MARC Ratings has observed timely cash collection to date. There is also exposure to contract termination risk, although this is considered low given TUNAS’ strong operating track record of over seven years in providing essential cooling services to PEH. The underground pipe network connecting the DCS plant to the buildings within PEH serves as a significant barrier to entry. The average projected finance service cover ratio (FSCR) through 2037 is 2.2x, with a minimum of 1.9x under the rating agency’s sensitised scenario, which assumes a 90-day collection cycle and certain stress to operating expenses. However, the cash flow generation is modest, leaving little headroom if expenditures were to rise above projections, or in the unanticipated event of dividend upstream. The rating agency notes that any distribution will be subject to a post-distribution FSCR of 2.0x.