MARC has affirmed its AAAID(s) rating on Sarawak Specialist Hospital & Medical Centre Sdn Bhd’s (SSHMC) outstanding RM61 million Istisna’ Serial Bonds with a stable outlook. The affirmed rating and outlook reflect the irrevocable and unconditional undertaking by the Sarawak state government, via its State Financial Secretary (SFS), to provide timely cashflows to meet repayments for the Istisna’ Serial Bonds under a redeemable preference shares (RPS) subscription agreement. MARC has a public information rating of AAA/stable on Sarawak based on, among other factors, the state’s overall strong financial position and low debt burden.

SSHMC is a 100%-owned subsidiary of SSHMC Holdings and Management Sdn Bhd (SSHMC Holdings), which in turn is wholly-owned by SFS. SSHMC was established to facilitate the construction of a 166-bed hospital with the proceeds from issuance of the rated bonds. Renamed as Sarawak General Hospital Heart Centre, the hospital has been leased to the federal government since 2011 and is currently operating as an extension of the Sarawak General Hospital. In line with the rising demand for medical services in the region, the hospital registered an annualised 21.2% increase in the total number of patients to 17,560 for the five-month period ending December 31, 2014 (5MFY2014) (2013: 34,768).

SSHMC’s financial operating structure comprises mainly investment income from cash received from the share subscription by SFS and depreciation expense of the hospital as well as interest expense on the rated bonds. For 5MFY2014, the company’s pre-tax operational loss stood at RM11.6 million (FY2013: RM27.9 million). Nonetheless, MARC views that SSHMC’s debt servicing ability will not be affected by its operating and financial performance given the back-to-back RPS subscription agreements. SFS will subscribe to the RPS in SSHMC Holdings which in turn will subscribe to an equivalent amount of RPS in SSHMC at intervals of one month ahead of the scheduled bond and profit payments. The proceeds from the share subscription from SFS are credited directly into a financial service reserve account to meet the repayment of the bonds.

As at end-May 2014, SSHMC has a modest cash balance of RM25.2 million against its redemption of RM61.0 million on September 19, 2014. Cash from further RPS subscription amounting to RM62.4 million is due to be received on August 19, 2014, which would be sufficient to meet the final profit and principal payments under the rated bonds.

Contacts:
Joan Leong, +603-2082 2270/ joan@marc.com.my;
Yap Lai Ken, +603-2082 2247/ laiken@marc.com.my.