MARC has reaffirmed the rating of MARC-1 on Radicare (M) Sdn Bhd’s RM49 Million Commercial Paper Programme (CPs) in a reflection of the secured cash receivables from the Ministry of Health (MOH) backed by invoices issued to the MOH; a 1.25 times security cover of invoices issued; stringent requirements of the issue structure; and sheer dominance of Radicare’s services in the central and eastern regions of Peninsular Malaysia.

Radicare’s principal activities comprise the provision of hospital support services, which include, clinical waste management, cleansing services, linen and laundry services, facilities engineering maintenance and biomedical engineering maintenance. Radicare’s other activities are in designing, constructing, equipping and commissioning of hospitals.

Pursuant to the privatization of hospital support services by the Government of Malaysia (GOM), Radicare was awarded by the Ministry of Health (MOH) in 1997, a concession to provide certain non-clinical support services to public hospitals located in the Federal Territory, Selangor, Kelantan, Pahang and Terengganu for a period of 15 years. The Concession Agreement (CA) covers a total of 37 public hospitals (Contract Hospitals) and the government may designate new hospitals to the existing list of Contract Hospitals from time to time. To date, the government has awarded an additional 11 (including 4 in 2004) new hospitals to Radicare. Fees for services rendered to the Government are payable by the Government monthly, in accordance to the CA.

The drawdown of CPs is based on approved invoices issued to MOH; the issued amount of these shall be equivalent to 80 per cent of the approved invoice value, thus giving a security cover of 1.25 times to the proposed drawdown. An approved invoice is one which has been acknowledged by MOH and is net of demerit deductions. Monies received from the MOH will be remitted directly to a Sinking Fund Account (SFA), predominantly for the purpose of redeeming the CPs and covering any shortfall for rollover.

Liquidity risk is mitigated through the requirement to maintain in the SFA, a minimum balance of at least 50%, 75% and 100% by six, three and one month prior to the reduction of the CP programme in accordance with the reduction schedule. Issuance of CPs based on approved invoices which the government has an obligation to settle, substantially mitigates credit risk. The progressive reduction of the CP facility reduces the refinancing risk at the final maturity.

In FY2004, on the back of 9% growth in revenue, profits increased by 6.5% from the previous year, whilst operating profit margin remained in double digits. Going forward, Radicare is expected to record revenue growth of between 5-11%, driven mainly by increased demand for hospital support services. Radicare’s debt leverage ratio as at end 2004 was 0.23 times. Pro-forma debt leverage ratio assuming full drawdown of the CPs is 0.63 times, well below the covenanted level of 60:40.