RAM Ratings has reaffirmed the respective AAA, AA2, AAA(bg) and P1 ratings of Al-'Aqar Capital Sdn Bhd's (Al-'Aqar Capital) Class A Islamic Medium-Term Notes (IMTN), Class B IMTN, Class C IMTN and Islamic Commercial Papers (ICP) under its RM300 million Sukuk Ijarah Programme; all the long-term ratings have a stable outlook.

The reaffirmed ratings of the respective classes of IMTN and ICP are premised on the sturdy cashflow generated by the portfolio of 11 hospitals (the Hospitals), the structural features of the transaction and the loan-to-value (LTV) ratios as well as debt service coverage ratios (DSCRs) that commensurate with the respective ratings. The Class C IMTN is enhanced by a bank guarantee provided by Public Bank Berhad (Public Bank). As such, the rating reflects Public Bank's AAA/stable/P1 financial institution ratings, which were reaffirmed by RAM Ratings on 8 June 2010.

The Hospitals delivered a healthy financial performance in fiscal 2010, with an 8.7% year-on-year (y-o-y) increase in revenue to RM1.2 billion and a 32.4% y-o-y jump in operating profit before depreciation, interest, tax and rent (OPBDITR) to RM239.3 million. RAM Ratings notes that the Hospitals' leases are subject to a triennial rental review and is a function of the yields on 10-year Malaysian Government Securities (MGS). Because of the low MGS yields during the rental revision, the scheduled total annual lease payments were reduced to RM47 million in FY Dec 2010 (FY Dec 2009: RM50.8 million).

Nonetheless, the total rental income is still above our stressed lease levels for the respective ratings - the DSCRs and LTV levels remain commensurate with the respective IMTN ratings. Moreover, the triennial rental review is subject to a minimum lease payment, which is more than sufficient to cover the semi-annual profit payments to the sukuk holders. We therefore envisage the transaction to perform satisfactorily through its remaining tenure.

Meanwhile, the collective market value of the Hospitals had appreciated 0.5% to RM668.8 million as at end-December 2010, from RM665.7 million a year earlier. We highlight that the leasehold status of Kedah Medical Centre's (KMC) site has reverted to its original freehold status, following an appeal by the REIT; KMC's market value had inched up 0.4% y-o-y as at end-December 2010. -Ends-

Media contact Lim Chern Yit (603) 7628 1035 chernyit@ram.com.my

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