Sarawak Specialist Hospital & Medical Centre Sdn Bhd - 2008

MARC has affirmed the AAAID(s) rating on Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) RM425 million Istisna’ Serial Bonds (Bonds). The rating carries a stable outlook. The affirmed rating is supported by the Sarawak State Government’s (State) 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 company. RPS subscription payments under SFS’ RPS subscription agreement with SSHMC Holdings, which are used to fund the latter’s subscription of RPS in SSHMC, mirror scheduled payments under the Bonds. Consequently, the rating of the Bonds reflects MARC’s AAA implied rating on the State which is underpinned by its prudent fiscal policies, strong fiscal performance, positive economic growth prospects and low debt burden. The stable outlook is based on that of the State, and reflects its continued willingness and capacity to honour its obligations under the RPS subscription agreement.

SSHMC was incorporated to facilitate the construction of the 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, a statutory corporation established under the State Financial Secretary (Incorporation) Ordinance in accordance with the laws of Sarawak and controlled by the State.

SSHMC has issued a total of eight tranches of Primary Istisna Bonds with a total value of up to RM425 million. The issuances of the Bonds are 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), one month before the semi-annual scheduled payment date of the Bonds. As of September 30, 2008, SSHMC has redeemed a total of RM92 million of the Bonds, leaving RM333 million outstanding of the initial issuance.

Construction of SIMC commenced in July 2003 with an initial targeted completion by July 2006. The project has been delayed mainly in testing and commissioning for mechanical and engineering systems and equipment. SIMC expects to achieve physical completion by the end of 2008. As of September 30, 2008, overall physical completion of the project is approximately 84%. Despite the issuance of a Certificate  of Non-Completion, the contract  has not been terminated. SSHMC  is contractually entitled to liquidated ascertained damages (LADs) at the rate of RM50,000 per day, which is deductible from monies due to the contractor or recoverable from the performance bonds which will be ascertained following construction completion. Notwithstanding, bondholders are fully insulated from construction and completion risk as the proceeds from the subscription of RPS are sufficient to cover debt service under the bonds.

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