Sarawak Specialist Hospital & Medical Centre Sdn Bhd - 2012

MARC has affirmed its AAAID(s) rating on Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) outstanding RM120 million Istisna’ Serial Bonds with a stable outlook. The affirmed rating is underpinned by MARC’s AAA/stable public information rating on Sarawak state, which through the State Financial Secretary (SFS), a body corporate established under the State Financial Secretary (Incorporation) Ordinance by the Sarawak state government, will subscribe to non-cumulative redeemable preference shares (RPS) in SFS’s wholly-owned subsidiary SSHMC Management and Holdings Sdn Bhd (SSHMC Holdings) under an irrevocable and unconditional RPS subscription agreement. In tandem, SSHMC Holdings will subscribe to an equivalent amount of RPS in its wholly-owned subsidiary, SSHMC; the timing and amount of RPS issuances are aligned with the scheduled repayments of the bonds. MARC’s rating on Sarawak reflects the state’s strong fiscal performance, low debt burden and fairly strong financial management practices.

The proceeds from the bond had been used to fund the construction of the 166-bed Sarawak International Medical Centre in Kota Samarahan, Sarawak. The hospital has been renamed Sarawak General Hospital Heart Centre (SGHHC) and is currently operated by the federal government as an extension of the Sarawak General Hospital (SGH). The federal government has signed a two-year lease agreement with SSHMC. The hospital began operations on January 1, 2011 with the heart centre followed by the cancer and kidney centres in September 2011 and December 2011 respectively. As at June 30, 2012, the number of patients treated stood at 28,624, of which 91% were outpatients. Of the total outpatients, 43% sought treatment from the cardiology and cardiothoracic specialist outpatient clinics.

In the seven-month period ending December 31, 2012 (7MFY2012), SSHMC recorded a pre-tax loss of RM22.5 million (FY2011: -RM150.6 million) due to the large depreciation cost incurred as well as the rental received which was capped at RM1 per month. Nonetheless, the repayment of the bonds is not dependent on the operating and financial performance of SSHMC given the back-to-back RPS subscription agreements, which correspond to the timing and amount of the scheduled redemption of the bonds. As of date, SSHMC has redeemed RM305 million of the RM425 million Istisna’ Serial bonds with the remaining outstanding RM59 million and RM61 million bonds scheduled for redemption in September 2013 and September 2014 respectively.

Major Rating Factors

Strengths

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