Sarawak Specialist Hospital & Medical Centre Sdn Bhd - 2010

MARC has affirmed the AAAID(s) rating on Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) RM425 million Istisna’ Serial Bonds with a stable outlook. The affirmed rating is primarily underpinned by MARC’s AAA/stable public information rating on Sarawak state based on the state’s strong fiscal performance, low debt burden and fairly strong financial management practices. The timely principal and profit repayments of the bonds are ensured by the redeemable preference share (RPS) subscription agreement between SSHMC and SSHMC Holdings and Management Sdn Bhd (SSHMC Holdings), which in turn mirrors the RPS subscription agreement between SSHMC Holdings and the State Financial Secretary (SFS), a body corporate established under the State Financial Secretary (Incorporation) Ordinance by the Sarawak state government. The timing and amount of RPS issuances are aligned with the scheduled repayments of the bonds. Each instalment payment is credited into a Finance Service Reserve Account (FSRA) one month prior to the scheduled semi-annual redemption date.

The proceeds of the serial bonds were used to fund the construction of the Sarawak International Medical Centre (SIMC) and purchase of medical equipment for the hospital. The construction of the hospital is now nearing completion, four years after the original completion date of July 2006. The hospital is expected to be leased and operated by the Ministry of Health as an extension of the Sarawak General Hospital in Kuching. SIMC is expected to commence operations in January 2011, with initial focus on cardiac treatment.  As of March 2010, actual construction progress by contractors, namely Sarawak Energy Engineering Sdn Bhd (SE) and Vamed Engineering GMBH & Co KG (Vamed), stood at 96.8% (June 2009: 93.3%). SSHMC has taken over the project from SE to expedite completion by the target hand-over date to MoH of January 1, 2011.

Bondholders are insulated from risks and challenges with respect to the operating performance of the hospital during the operations phase as well as residual construction risk, given the RPS subscription agreements between SFS and SSHMC Holdings as well as SSHMC Holdings and SSHMC. As of September 30, 2010, SSHMC has redeemed a total of RM194 million, leaving RM231 million of the initial issuance outstanding.

Major Rating Factors

Strengths

• Strong support from the Sarawak state government; and
• Shareholders’ preference share subscription agreement underpins the bond structure.