Sarawak Specialist Hospital & Medical Centre Sdn Bhd - 2007

MARC has reaffirmed Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) Istisna’ Serial Bonds (Bonds) rating at AAA(s)ID. The rating outlook is stable. The suffix(s) indicates that the rating on the Istisna Serial Bonds is supported by the Sarawak State Government’s obligation to pay, in a timely manner, amounts due under a Redeemable Preference Share (RPS) subscription agreement between the State Financial Secretary (Inc.) (SFS) and SSHMC Management and Holdings Sdn Bhd (SSHMC Holdings), SSHMC’s parent. The latter has a back-to-back RPS subscription agreement with SSHMC. The payments by SSHMC to the bondholders mirror the proceeds to be received from the subscription of SSHMC Holdings’ RPS which, in turn, are used to fulfill a back-to-back subscription of SSHMC’s RPS. During the year under review, SSHMC received share subscription price for the RPS amounting to RM64.12 million. The rating of the Istisna Serial Bonds and stable rating outlook consequently reflects that on the Sarawak State Government. MARC’s AAA implied rating on the Sarawak State Government reflects its sound financial performance, favourable economic outlook, declining debt levels, manageable debt service burden relative to its resources, the Government’s demonstrated fiscal discipline and ample liquidity.

SSHMC was incorporated in July 2001 to facilitate the construction of Sarawak International Medical Centre (SIMC), a state-initiated and state-owned project. SSHMC is a wholly-owned subsidiary of SSHMC Holdings which, in turn, is wholly-owned by SFS. SFS is a statutory corporation established under the State Financial Secretary (Incorporated) Ordinance under the laws of Sarawak and is controlled by the State. SSHMC’s current paid-up capital is RM50.5 million.

SSHMC has issued a total of eight tranches of Primary Istisna Bonds with a total value of up to RM425 million raising net proceeds of approximately RM380 million. The issuances of the Bonds were preceded by the execution of the Share Subscription Agreements. The payment schedule for the respective share subscriptions corresponds to the scheduled payments under the Bonds issuance, in terms of amount and timing. Each installment payment is credited into a Finance Service Reserve Account (FSRA), an account jointly managed by SSHMC and the Facility Agent, one month before the semi-annual scheduled payment date of the Bonds.

The project, which commenced in July 2003 was targeted to be completed in July 2006. As at 30 November 2007, overall physical progress for the project is approximately 79% against targeted progress of approximately 99%. The delay was due to initial problem encountered in the piling work caused by the ground/soil condition, bad weather, material shortage (diesel and  cement) and extra work (Variation Order) as well as minor changes in the layout to comply with recent regulations that have come into force. SSHMC expects to achieve physical completion in the middle of 2008. Despite the issuance of a Certificate of Non-Completion, the Contract has not been terminated. SSHMC is contractually entitled to liquidated ascertained damages (LAD) at the rate of RM50,000 per day, which is deductible from monies due to the Contractor or recoverable from the Performance Bonds. Bondholders are insulated from construction and completion risk as debt service in respect of the bonds will be fully covered by proceeds from the subscription of RPS at SSHMC Holdings and SSHMC.

Major Rating Factors

Supporting Factors

• Strong issue structure of Bonds; and
• The fiscal prudence and strong financial discipline of the Sarawak State Government