Published on 15 Sep 2022.
RAM Ratings has reaffirmed the AA1/Stable rating of Triplc Medical Sdn Bhd’s (the Company) RM639 mil Senior Sukuk Murabahah (2017/2035) (the Senior Sukuk). The reaffirmation reflects our expectation that the Company’s debt servicing ability will remain intact, supported by a steady inflow of monthly Availability Charges and the satisfactory maintenance of a teaching hospital and academic complex on Universiti Teknologi MARA’s (UiTM) Puncak Alam campus.
Timely receipts of concession payments coupled with the delayed payment of construction-related costs boosted Triplc Medical’s cash reserves, translating to better than expected finance service coverage ratios (FSCRs with cash balances, post-distribution, calculated on payment dates) of 4.77 times and 4.40 times in October 2021 and April 2022, respectively.
Under our stressed analysis, Triplc Medical’s FSCRs are projected to broadly meet the 1.65 times minimum required to support its rating. However, the recent hefty RM33.0 mil in distributions made in 1H 2022 resulted in lower cash retention, which may add some pressure to its coverage ratios in October 2024 and 2025. Any persistent distributions in the next two years can further test Triplc Medical’s minimum projected FSCRs and pressure the ratings. That said, the Company still has some time to restore its credit metrics if it outperforms RAM’s stressed assumptions as the FSCR is projected to only first dip in FY Dec 2024. It is therefore imperative for the management to remain mindful of FSCRs over the tenure of the Senior Sukuk and not only at the point of distribution.
Operationally, UiTM has yet to fully utilise the teaching hospital since its completion. As such, asset management service charges (AMSCs) payable to Triplc Medical have been curtailed. The management intends to pass through the reduction in AMSCs and performance-related deductions to the operations and maintenance (O&M) provider, including rectifying any overpaid amounts which arose due to timing mismatches of the earlier payments made. The Company’s cashflows will be negatively impacted if any inflow-outflow mismatch persists. Meanwhile, key performance indicator-related deductions were within our stressed assumption for the first year of operations in 2021, amounting to an average of 3.0% of AMSCs received.
The sukuk rating is further moderated by the fact that Triplc Medical and the O&M contractor lack experience in hospital maintenance, which is deemed more complex than the O&M of non-specialised buildings. This risk is mitigated by contracting experienced third parties and employing experienced staff in line with the requirements under the concession agreement (CA). Triplc Medical is also exposed to single-project and regulatory risks. The compensation remedy under its CA with UiTM and the Government of Malaysia offers sukukholders sufficient protection in the event that the CA is terminated due to default by Triplc Medical and/or UiTM.
Hani Hamizah Nor Hashim
(603) 3385 2575
Davinder Kaur Gill
(603) 3385 2525
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Published by RAM Rating Services Berhad
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Ratings on TRIplc Medical Sdn Bhd