FW: RAM Ratings assigns final AA1 rating to TRIplc Medical's Senior Sukuk

 

Published on 16 Oct 2017.

 

RAM Ratings has assigned a final rating of AA1/stable to TRIplc Medical Sdn Bhd’s (TMSB or the Company) proposed Senior Sukuk Murabahah of up to RM639.0 million (Proposed Senior Sukuk). TMSB has entered into a 25-year concession agreement (CA) with Universiti Teknologi MARA (UiTM) and the Government of Malaysia to construct a teaching hospital and medical academic complex in Puncak Alam, Selangor (the Project), and thereafter to undertake asset management services for the Project. A single-purpose entity, TMSB is fully owned by Bursa-listed TRIplc Berhad (the Group).

 

Upon completion of the Project, TMSB stands to receive monthly fixed Availability Charges for the remaining period of the concession, which form the bulk of its cash receipts. The Company will also earn Maintenance Service Charges linked to the performance of its maintenance work. These contractually backed and predictable cashflows anchor TMSB’s rating. After factoring in delays in construction work and payments from UiTM as well as distributions and payments on subordinated obligations to the extent allowed under our stressed assumptions, TMSB would be able to register a robust finance service coverage ratio (FSCR) of 1.65 times at a minimum (based on RAM’s calculations), commensurate with an AA1 rating.

 

During the construction period, sukuk holders will be protected against an Event of Default (EOD) by an irrevocable and unconditional guarantee under the Shariah principle of Al-Kafalah, jointly provided by Danajamin Nasional Berhad (Danajamin) and Bank Pembangunan Malaysia Berhad (BPMB), both institutions rated AAA/Stable/P1 by RAM. The said facility would cover the construction period up to the issuance of a Certificate of Acceptance (COA) or 48 months, whichever is earlier, substantially moderating construction risk. TMSB’s rating is thus lifted beyond an AA3 cap typically applied during the construction phase. EODs linked to performance are the failure to complete construction within the timeline per the CA, and suspension of work beyond 180 days. During construction, further comfort can be drawn from an undertaking by the Group to, amongst others, cover any overruns on the Project’s construction cost of RM599 million, shortfall in working capital and debt servicing.

 

Despite the low degree of counterparty risk in this transaction, TMSB is susceptible to payment delays which could jeopardise its ability to meet its obligations. Cashflow leakage is mitigated by tight covenants and structural features of the transaction. Notably, the payment of dividends, and all repayments on advances from related companies and instruments subordinated to the Proposed Sukuk are subject to distribution covenants.

 

We highlight that TRIplc Berhad lacks experience in hospital maintenance, which requires higher service levels. A portion of the maintenance work is viewed as more straightforward, for which we derive some comfort from the Group’s ability to deliver, based on a 3-year track record for maintenance of faculty buildings and facilities on the same UiTM campus. Crucially, the more technically challenging maintenance of medical equipment will be rendered by the manufacturers and/or the vendors as the case may be. TMSB’s earnings from this avenue are expected to be fairly predictable as the facilities management arm of TRIplc Berhad will undertake the required work on a lump-sum basis; any KPI-related deductions imposed by UiTM on TMSB will be borne by the latter.

 

The transaction is also exposed to the risk of termination of the CA, which may result in the disruption of concession payments. While termination due to default by UiTM is unlikely, termination resulting from TMSB’s failure to fulfil its obligations is possible. Should this happen, sukuk holders will be protected during the construction phase by the Al-Kafalah facility, whereas post-completion of the Project, outstanding Senior Sukuk raised for construction and all Availability Charges and Maintenance Service Charges due will be paid by UiTM.

 

TRIplc Berhad is a construction, property development and management services company. The Group – via another subsidiary – holds an existing 23-year concession, under which it has constructed multiple faculty buildings and facilities for UiTM on the same campus and conducted maintenance works since 2014.

 

 

 

Analytical contact

Thong Mun Wai

(603) 7628 1022

munwai@ram.com.my

 

Media contact

Padthma Subbiah

(603) 7628 1162

padthma@ram.com.my