MARC AFFIRMS AAAID(s) RATING ON SARAWAK SPECIALIST HOSPITAL & MEDICAL CENTRE SDN BHD’S RM425 MILLION ISTISNA’ SERIAL BONDS

Oct 25, 2013 -

MARC has affirmed the AAAID(s) rating on Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) outstanding RM61 million Istisna’ Serial Bonds with a stable outlook. The rating is underpinned by the irrevocable and unconditional obligation of the Sarawak State Government, via its State Financial Secretary Inc (SFS), to meet the repayment of the bonds under a redeemable preference shares (RPS) subscription agreement. MARC has a public information rating of AAA/stable on Sarawak State based on the State’s overall strong financial position and low debt burden.

Under the RPS subscription agreement, SFS, a body corporate which was established under the State Financial Secretary (Incorporation) Ordinance under the laws of Sarawak, will subscribe to the non-cumulative RPS in its wholly-owned subsidiary SSHMC Management and Holdings Sdn Bhd (SSHMC Holdings) which in turn will subscribe to an equivalent amount of non-cumulative RPS in SSHMC Holdings’ 100%-held SSHMC. The RPS share subscription schedules mirror the timing and the payment amount of the bond repayment structure while the proceeds from the share subscriptions are utilised solely to meet the principal and profit payments of the bonds. Moreover, each instalment payment is credited into a financial service reserve account (FSRA) one month prior to the scheduled redemption date.

The bond proceeds were used to fund the construction of the 166-bed Sarawak General Hospital Heart Centre (SGHHC). Following the completion of construction in early 2011, SSHMC leased the hospital to the Federal Government under a lease agreement that has been further extended to December 31, 2015. The hospital is being utilised as an extension of the Sarawak General Hospital (SGH) with a focus on cardiac treatment. For the six-month period ended June 30, 2013, the hospital has treated 1,636 inpatients and 12,593 outpatients. MARC understands, however, that the hospital continues to face a shortage of medical personnel; nonetheless, the hospital’s operational and financial performance have no bearing on the ability of SSHMC to redeem the bonds.

For 8MFY2013, SSHMC recorded an operational loss of RM18.7 million (FY2012: RM28.0 million), due mainly to depreciation charges of RM18.6 million (FY2012: RM27.9 million) against weak revenue generation. Notwithstanding this, MARC notes the company’s liquidity position continues to be strong, arising solely from the proceeds from RPS share subscription, to meet upcoming redemptions. As of August 31, 2013, SSHMC’s cash balance stood at RM86.8 million (FY2012: RM27.2 million) which was sufficient to redeem the principal amount of RM59 million on September 20, 2013. The final repayment of RM61 million bonds is due in September 2014.

As the rating and outlook are mainly based on the support from the Sarawak State Government via SFS, any changes to the rating would be driven by an underlying change in MARC’s public information rating and rating outlook on Sarawak.

Contacts:

Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.