[RAM] RAM Ratings revises outlook on TRIplc Medical to stable, reaffirms AA1 rating, following successful project completion
RAM Ratings has revised the outlook on the rating of TRIplc Medical Sdn Bhd’s (Triplc Medical or the Company) RM639 mil Senior Sukuk Murabahah (the Senior Sukuk) to stable, from negative. Concurrently, we have reaffirmed the AA1 rating of the Senior Sukuk.
The revision in outlook is premised on the removal of construction-related risk following the Project’s completion in February 2021, after some delays which had prompted the negative outlook. The Project consists of a teaching hospital and an academic complex at Universiti Teknologi MARA’s (UiTM) campus in Puncak Alam, Selangor. Underscored by steady concession payments and satisfactory maintenance of the Project, the transaction’s financial and operating metrics remain supportive of the Senior Sukuk’s AA1 rating.
RAM had earlier expected the Project to be completed by April 2021, with the first concession payment to be received in July. However, monthly Availability Charges (ACs) – the principal cashflow of Triplc Medical - for February, March and April were respectively received in March, April and May 2021. This was despite the expected administrative hiccups in the early days following the Project’s completion.
Following its completion, the construction completion guarantees from Danajamin Nasional Berhad and Bank Pembangunan Malaysia Berhad were cancelled. Both parties have agreed to a partial refund of guarantee fees, amounting to RM9.47 mil. This has in turn boosted Triplc Medical’s cash reserves – something that we had not considered earlier.
Given the COVID-19 pandemic and the various stages of the Movement Control Order (MCO), UiTM has yet to fully occupy the teaching hospital since its completion. This has temporarily reduced the Asset Maintenance Service Charges (AMSCs) payable to Triplc Medical. The operations and maintenance (O&M) of the project have been contracted out to TRIplc FMS Sdn Bhd (Triplc FMS)– a sister company of Triplc Medical - at a fixed 95% of AMSCs. A back-to-back reduced cost is payable to Triplc FMS if UiTM pays lower AMSCs. Due to the Project’s partial occupancy and utilisation, there were no Key Performance Indicators (KPI)-related deductions in February 2021. Deductions pertaining to KPI underperformance in March and April 2021 were finalised on 27 May 2021, at a respective RM27,000 (1.6%) and RM32,000 (1.9%).
RAM’s stressed assumptions for the projected cashflow include a three-month delay in the receipt of ACs, monthly AMSC deductions of 10% in 2021 (followed by 5% thereafter), zero construction cost savings and zero AMSC profit margins. Our analysis indicates that the Company will register respective minimum and average finance service coverage ratio (FSCRs) of 1.65 and 1.86 times (with cash balances, post-distribution, calculated on payment dates). These align with RAM’s benchmark FSCR of an AA1-rated complex Private Finance Initiative/Public Private Partnership (PFI/PPP) project (issuer’s base case: 1.81 and 2.27 times). While distributions to shareholders are allowed under the transaction subject to covenanted limits, any excessive payments that are not accompanied by an outperformance of RAM’s stressed assumptions may be a cause for concern.
Compared to other PFI/PPP projects, the maintenance of a hospital is technically more challenging as it involves the disposal of clinical waste, a high level of regular sanitisation, controlled temperature and condensation of air-conditioning units as well as insulation (to avoid bacteria and infection risk), and the maintenance of specialised medical as well as ICT equipment. The rating is moderated by Triplc Medical’s and its O&M contractor’s lack of experience in hospital maintenance. However, Triplc Medical has mitigated this risk by contracting experienced parties during the construction phase. These parties ensure the satisfactory performance of critical hospital and equipment maintenance up to three years after completion.
As with other concession-based projects, Triplc Medical is exposed to single-project and regulatory risks. Pursuant to its concession agreement, the compensation remedy offers the sukukholders sufficient protection in the event of termination due to default by Triplc Medical and/or UiTM.
Davinder Kaur Gill
(603) 3385 2525