Tuesday, Sep 12, 2023
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. There is no further drawdown expected, but any drawdown will require a reassessment 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 contract with Sime Darby Property Selatan Satu Sdn Bhd (where the ultimate obligor is the government), with take-or-pay and energy cost pass-through mechanisms, effectively eliminates demand risk and underpins cash flow visibility. The take-or-pay structure guarantees a minimum annual revenue of around RM15.02 million through 2037 which produces 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 receivable collections. Nevertheless, MARC Ratings has observed timely cash collections to date. There is also exposure to contract termination risk although this is considered low given TUNAS’ strong operating track record of more than six years providing essential cooling services to PEH. The underground pipe network connecting the DCS plant to the buildings within PEH serves as a strong barrier to entry. Average projected finance service cover ratio through 2037 is 2.3x with a minimum of 1.9x under MARC Ratings’ sensitised scenario assuming a 90-day collection cycle and certain stress to operating expenses.
Contacts:
Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my
Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my