Sarawak Specialist Hospital & Medical Centre Sdn Bhd - 2009

MARC has affirmed the AAAID(s) rating on Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) RM425 million Istisna’ Serial Bonds. The outlook for the rating is stable. The affirmed rating is premised on MARC’s AAA rating on Sarawak state which, through its State Financial Secretary Inc. (SFS), had executed a redeemable preference share (RPS) subscription agreement with its wholly-owned subsidiary, SSHMC Management and Holdings Sdn Bhd (SSHMC Holdings), SSHMC’s parent company, to ensure timely principal and profit payments on the bond issue. The RPS subscription payments, which are in turn used to fund SSHMC Holdings’ subscription of RPS in SSHMC, mirror the scheduled payments under the bond issuance. The stable outlook reflects the state’s continued willingness and capacity to honour its obligations under the subscription agreement.

The bond proceeds were used to fund the construction of a specialist hospital in Kota Samarahan, the Sarawak International Medical Centre (SIMC). The developer of the project is SSHMC, a wholly-owned subsidiary of SSHMC Holdings, which in turn is owned by SFS. Construction of the hospital commenced in July 2003, and has reached substantial completion in 2009, after an extended period of delay beyond its original scheduled completion on July 2006. The delay has prompted SSHMC to issue a Certificate of Non-Completion to the project’s main consortium of contractors, namely Sesco Engineering Sdn Bhd (Sesco Engineering) and Vamed Engineering GMBH & Co KG (Vamed Engineering).

As of June 2009, overall physical construction of SIMC was 93.3% completed, with the major outstanding work remaining in the testing and commissioning of mechanical and electrical services, medical equipment as well as information technology systems. However, a final completion and handover date has yet to be set. Nevertheless, bondholders remain shielded from the project’s failure to achieve timely completion within the earlier anticipated time frame. Similarly, bondholders are not exposed to demand risk or performance risk post-project completion.
 
These and other challenges and risks are fully mitigated by the share subscription agreements between SFS and SSHMC Holdings as well as SSHMC Holdings and SSHMC under which the payment schedules for the respective share subscription correspond to the scheduled payments under the bond issuance in terms of amount and timing. Additionally, 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, 2009, SSHMC has redeemed a total of RM142 million of the bonds, leaving RM283 million outstanding of the initial issuance.

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