Published on 23 Jan 2020.
RAM Ratings has reaffirmed the AA2/Stable rating of Konsortium ProHAWK Sdn Bhd’s (ProHAWK or the Company) RM900 million Islamic MTN Programme (2013/2033), premised on our expectation that ProHAWK will register a minimum finance service coverage ratio (FSCR) of 1.50 times throughout the tenure of the IMTN. ProHAWK holds the concession to design, construct, commission and maintain the Women and Children Hospital (WACH or the facilities and infrastructure) in Kuala Lumpur.
After multiple delays in the construction of the hospital, ProHAWK completed the WACH in September 2018 and the Government of Malaysia (GOM) accepted the facilities and infrastructure on 28 September 2018. ProHAWK had also completed outstanding rectification works in December 2018, within the stipulated time frame, as stated in its Letter of Undertaking to the GOM. Subsequently, the Company will be entitled to a predictable stream of concession payments from a strong counterparty, i.e. the GOM via the Ministry of Health. Despite some hold-ups in earlier concession payments, the situation had improved by March 2019, with the average collection period having narrowed to one to two months – within our sensitivity of three months.
Meanwhile, deductions related to the maintenance of the hospital due to non-compliance of certain key performance indicators under the concession agreement have trended upwards and have yet to stabilise in view of the small number of users at the initial stage. The paediatric clinics moved in only in February 2019, while the obstetrics and gynaecology department relocated most of its operations to the WACH only in early October 2019. That said, comfort is derived from the experience and track record of the asset management services provider – Edgenta Healthcare Management Sdn Bhd – a wholly owned subsidiary of UEM Group Berhad’s (UEM) 69.14%-held UEM Edgenta Berhad, as well as the back-to-back arrangements on the aforementioned maintenance-related deductions.
ProHAWK derives strong support from its shareholders, particularly UEM. Under the supplemental Deed of Undertaking and Subordination, UEM and Najcom Sdn Bhd (the Company’s other shareholder) have irrevocably and unconditionally committed to meeting all shortfalls in the designated accounts and payments in relation to the IMTN, on a joint and several basis, until 31 December 2019. To date, UEM has injected RM189 mil into ProHAWK. Since December 2018, the Company’s FSRA is covered by three different SBLC - where two have expired as at January 2020 - to satisfy the minimum finance service amount, as permitted by the Trust Deed. The active remaining SBLC amounted to RM25 mil, is valid from December 2019 until March 2020.
The transaction’s tight financing structure and restrictive covenants further safeguard ProHAWK’s cashflow. These include limits on distributions to shareholders and payments on subordinated shareholder advances. Distributions are allowed only after the first redemption of the IMTN, provided that the FSCR is maintained at a minimum of 1.50 times after such payment.
ProHAWK is exposed to the risk of termination of the CA. Should the CA be terminated during the asset management services period due to default by ProHAWK, IMTN holders will be protected as the GOM will have to pay the financing amount taken to construct the WACH. The timeliness of monthly concession payments from the GOM is also crucial as ProHAWK will rely solely on these payments to meet its obligations under the IMTN. In addition, asset management services for the hospital are considered more challenging than that for other government buildings in terms of scope and service levels.
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Ratings on Konsortium ProHAWK Sdn Bhd