Tuesday, Sep 21, 2004
MARC has assigned a rating of MARC-1 on Radicare (M) Sdn Bhd’s (Radicare) RM49 Million Commercial Paper Programme (CP). The rating assignment is a reflection of the secured cash receivables from the Ministry of Health (MOH); a 1.25 times security cover of invoices issued to the MOH; stringent requirements of the issue structure and the monopoly position of Radicare’s services in the central and eastern district of Peninsular Malaysia. The rating is, however, moderated by the company’s weak financials in the past.
Radicare’s principal activities are providing hospital support services, which include clinical waste management, cleansing services, linen and laundry services, facilities engineering maintenance and biomedical engineering maintenance. Radicare’s other activities are in designing, constructing, equipping and commissioning of hospitals.
Pursuant to the privatization of hospital support services by the Government of Malaysia (GOM), Radicare was awarded by the Ministry of Health (MOH) in 1997, a concession to provide certain non-clinical support services to public hospitals located in the Federal Territory, Selangor, Kelantan, Pahang and Terengganu for a period of 15 years. The Concession Agreement (CA) covers a total of 37 public hospitals (Contract Hospitals) and the government may designate new hospitals to the existing list of Contract Hospitals from time to time. To date, the government has awarded an additional seven new hospitals to Radicare. Fees for services rendered to the Government are payable by the government monthly, in accordance to the CA.
The CP issuance acts as a bridging finance to accommodate Radicare’s working capital requirement. The drawdowns of CPs are based on approved invoices issued to MOH; the issued amount of these shall be equivalent to 80 per cent of the approved invoice value, thus giving a security cover of 1.25 times to the proposed issue. Monies received from the MOH will be remitted directly to a Sinking Fund Account, predominantly for the purpose of redeeming the CPs and covering any shortfall for rollover.
Liquidity risk is mitigated through the requirement to maintain in the SFA, a minimum balance of at least 50%, 75% and 100% by six, three and one month(s) prior to the reduction of the CP programme in accordance with the reduction schedule. The pre-funding and maintenance of a RM1.5 million in the Debt Service Reserve Account at all times ensures that servicing of coupon payments is met. Issuance of CPs based on approved invoices which the government has an obligation to settle, substantially mitigates credit risk. The progressive reduction of the CP facility reduces the refinancing risk at the final maturity.
Radicare’s revenue and operating profit in the past has displayed a fluctuation in trend, especially in years 2000 and 2001, due to the imposition of the first demerit deduction scheme. However, the company made a turnaround in fiscal 2003 with improved revenue and operating profit of RM211.9 mil (2002: RM181.9 mil) and 12.3% (2002: 3.2%) respectively. Going forward, Radicare is expected to record revenue growth of between 5-11%, driven mainly by increased demand for hospital support services. Radicare’s debt leverage ratio as at end 2003 was 0.32 times.
Radicare’s principal activities are providing hospital support services, which include clinical waste management, cleansing services, linen and laundry services, facilities engineering maintenance and biomedical engineering maintenance. Radicare’s other activities are in designing, constructing, equipping and commissioning of hospitals.
Pursuant to the privatization of hospital support services by the Government of Malaysia (GOM), Radicare was awarded by the Ministry of Health (MOH) in 1997, a concession to provide certain non-clinical support services to public hospitals located in the Federal Territory, Selangor, Kelantan, Pahang and Terengganu for a period of 15 years. The Concession Agreement (CA) covers a total of 37 public hospitals (Contract Hospitals) and the government may designate new hospitals to the existing list of Contract Hospitals from time to time. To date, the government has awarded an additional seven new hospitals to Radicare. Fees for services rendered to the Government are payable by the government monthly, in accordance to the CA.
The CP issuance acts as a bridging finance to accommodate Radicare’s working capital requirement. The drawdowns of CPs are based on approved invoices issued to MOH; the issued amount of these shall be equivalent to 80 per cent of the approved invoice value, thus giving a security cover of 1.25 times to the proposed issue. Monies received from the MOH will be remitted directly to a Sinking Fund Account, predominantly for the purpose of redeeming the CPs and covering any shortfall for rollover.
Liquidity risk is mitigated through the requirement to maintain in the SFA, a minimum balance of at least 50%, 75% and 100% by six, three and one month(s) prior to the reduction of the CP programme in accordance with the reduction schedule. The pre-funding and maintenance of a RM1.5 million in the Debt Service Reserve Account at all times ensures that servicing of coupon payments is met. Issuance of CPs based on approved invoices which the government has an obligation to settle, substantially mitigates credit risk. The progressive reduction of the CP facility reduces the refinancing risk at the final maturity.
Radicare’s revenue and operating profit in the past has displayed a fluctuation in trend, especially in years 2000 and 2001, due to the imposition of the first demerit deduction scheme. However, the company made a turnaround in fiscal 2003 with improved revenue and operating profit of RM211.9 mil (2002: RM181.9 mil) and 12.3% (2002: 3.2%) respectively. Going forward, Radicare is expected to record revenue growth of between 5-11%, driven mainly by increased demand for hospital support services. Radicare’s debt leverage ratio as at end 2003 was 0.32 times.