Published on 09 Dec 2020.
RAM Ratings has reaffirmed the AA2/Stable ratings of Konsortium ProHAWK Sdn Bhd’s (ProHAWK or the Company) RM900 mil Islamic MTN Programme (2013/2033) (the IMTN). The reaffirmation reflects our expectation that ProHAWK will be able to maintain a minimum finance service coverage ratio (FSCR) of 1.50 times throughout the tenure of the IMTN. The Company holds the concession to design, construct, commission and maintain the Women and Children Hospital (WACH) in Kuala Lumpur.
From October 2018 until the end of the concession period, ProHAWK is entitled to concession payments from the Government of Malaysia (GoM) – a strong counterparty – via the Ministry of Health. The timeliness of these monthly disbursements is crucial as ProHAWK depends solely on them to meet its obligations under the IMTN. While the Company still faces some degree of timeliness risk due to administrative hurdles, payments have become more prompt. The average collection period has improved to two to three months this year, compared to six to eight months during the initial phase after the WACH’s completion.
Nevertheless, performance-related deductions from asset management service (AMS) payments have been creeping up of late and are expected to rise further in the coming months. The increase mainly stems from delays in rectifying outstanding work during the defects liability period, along with supply chain and productivity issues during the various phases of the movement control order and the imposition of standard protocols. The uptrend can also be ascribed to some disagreements with the WACH over the computation of deductions. In the longer run, ProHAWK seeks to reduce deductions to around 6%-7% (September 2020: 9%). In this regard, we are reassured by the sub-contractor’s (Edgenta Healthcare Management Sdn Bhd) long track record in hospital maintenance and the Company’s back-to-back arrangement on deductions.
The transaction’s tight financing structure and restrictive covenants shield ProHAWK from potential cashflow leakages. Limitations imposed include distributions to shareholders and payments on subordinated shareholder advances. Distributions are only allowed if the FSCR is kept at a minimum of 1.50 times after the first IMTN redemption.
Meanwhile, the Company is susceptible to the termination risk of the concession agreement. The likelihood of termination due to default by the GoM is deemed remote, although default by ProHAWK is still possible. If this occurs during the AMS period, the IMTN holders will be protected as the GoM will have to pay the financing amount taken up to construct the WACH.
ProHAWK, a 65:35 JV between UEM Group Berhad (UEM) and Najcom Sdn Bhd, benefits from solid shareholder support. Past support is evinced from UEM’s advances and standby letters of credit to address shortfalls in the Company’s Financial Service Reserve Account, if any. ProHAWK is anticipated to receive ready financial assistance if necessary, although the likelihood to need such support has diminished.
Chow Kah Mun
(603) 3385 2501
(603) 3385 2577
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Ratings on Konsortium ProHAWK Sdn Bhd