RAM Ratings reaffirms ratings of Al-‘Aqar Capital’s RM300 million sukuk

Published on 30 April 2012

RAM Ratings has reaffirmed the respective AAA, AA2, AAA(bg) and P1 ratings of Al-‘Aqar Capital Sdn Bhd’s (Al-‘Aqar Capital) Class A Islamic Medium-Term Notes (IMTN), Class B IMTN, Class C IMTN and Islamic Commercial Papers (ICP) under its RM300 million Sukuk Ijarah Programme; all the long-term ratings have a stable outlook. Al-‘Aqar Capital is a special-purpose vehicle incorporated solely for the acquisition of 11 hospitals (the Hospitals) leased to Al-‘Aqar Healthcare Real Estate Investment Trust and operated by KPJ Healthcare Berhad (KPJ Group or the Group).



The reaffirmation of the respective AAA, AA2 and P1 ratings of the Class A IMTN, Class B IMTN and ICP is premised on the debt service coverage as well as loan-to-value ratios that commensurate with the respective ratings, the transaction’s features and the sturdy cashflow generated by the hospital operators. Meanwhile, the reaffirmation of the Class C IMTN reflects the enhancement from a bank guarantee provided by Public Bank Berhad, whose AAA/stable/P1 financial institution ratings were reaffirmed by RAM Ratings on 15 June 2011.

Rental income derived from the Hospitals increased 3.7% year-on-year (y-o-y) to RM48.8 million in FYE 31 December 2011 (FY Dec 2011), i.e. above our stressed lease levels for the respective ratings. We note that rental revision takes place every 3 years, and is a function of the yields of 10-year Malaysian Government Securities and the market values of the Hospitals. Nevertheless, we derive comfort from the minimum lease payments under the lease terms which, collectively, are sufficient to cover the semi-annual profit payments to the Sukuk holders.

We note that the hospital operators are subsidiaries of KPJ Group – Malaysia’s largest private hospital group – with a track record of robust financial and operating performances. The operators of the 11 hospitals recorded an 8.9% y-o-y revenue growth in FY Dec 2011 (FY Dec 2010: +8.5%), mainly driven by more admissions, surgeries and outpatient treatments. We opine that the individual hospital operators should have minimal difficulty in meeting their lease payments, which have all been promptly settled to date. Given that the Hospitals are viewed to be strategic to the KPJ Group’s operations (the 11 establishments collectively contributed about 70% of the Group’s total revenue in FY Dec 2011), we expect ready support from the Group should the need arise.
Collectively, the market value of the Hospitals appreciated 6.0% y-o-y to RM708.7 million as at end-December 2011 (end-December 2010: RM668.8 million). This was chiefly due to the higher valuation of RM111.3 million for KPJ Johor Specialist Hospital (end-December 2010: RM77.6 million), following the completion of its additional 6-storey annex building. The valuations of the remaining assets were also marginally higher in 2011. Nonetheless, we opine that the disposal of the Hospitals, if required, may be a challenge given the specialised and illiquid nature of such assets. On the other hand, this is mitigated by the pool of 11 establishments that are geographically well distributed throughout Peninsular Malaysia.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my