MARC has placed Radicare Sdn Bhd’s (Radicare) issue ratings of MARC-1/A+ on its RM100 million CP/MTN facilities and A+ on its RM50 million MTN facility on MARCWatch Negative due to the increased uncertainty regarding the renewal of Radicare’s hospital support services concession which expires on October 28, 2011. The last rating action was taken on December 16, 2010 to affirm the ratings and to revise the rating outlook to developing from stable in light of the uncertainty surrounding the government’s decision on the concession renewal.

Radicare has the exclusive right to provide non-clinical support services to 41 government hospitals and six medical institutions through a 15-year concession awarded by the government in October 1996. Under the terms of the concession agreement (CA), the government is obliged to make a decision on the renewal of the concession a year before the expiry of the CA. However, MARC understands that to date, the concession renewal is still under review by the authorities.

The current issue ratings of Radicare reflect the assumption that Radicare’s hospital support services concession with the government will be renewed before expiry. Non-renewal of the concession could result in rating changes for the rated facilities given that Radicare generates more than 90% of its revenue through the concession. Moderating the direct credit impact of the delay or non-renewal risk are the amounts held in designated accounts of RM13.5 million and RM17 million under the MTN and CP/MTN facilities respectively which provide slightly over 75% cover of the outstanding RM20 million under the two rated facilities as of July 12, 2011. The company has cash and cash equivalents (excluding amounts in designated accounts) of RM92.3 million as of April 30, 2011 that should provide some additional liquidity to meet its obligations under the MTN and CP/MTN facilities which will mature in November 13, 2012 and November 28, 2012 respectively. 

MARC will closely monitor developments on the renewal of Radicare’s CA and will take appropriate rating action upon the expiry or renewal of the CA, whichever is earlier.

Contacts:
Nisha Fernandez, +603-2082 2269/ nisha@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.