Published on 15 May 2023.
RAM Ratings has affirmed the AA2/Negative rating of Konsortium ProHAWK Sdn Bhd’s (ProHAWK or the Company) RM900 mil Islamic Medium-Term Notes (IMTN) Programme (2013/2033).
ProHAWK holds the concession to design, construct, commission and maintain Hospital Tunku Azizah in Kuala Lumpur. We maintained the negative outlook premised on the continued mismatch in ProHAWK’s cash flow which may affect its ability to meet the minimum required Finance Service Reserve Account (FSRA) balance and an annual finance service coverage ratio (FSCR) of at least 1.50 times to sustain the AA2 rating. The shortfall arose from additional operational expenses incurred by ProHAWK since the start of the Asset Management Services (AMS) period, amounting to approximately RM6 mil annually for work beyond the original scope of ICT operations and maintenance services (OMS). However, expected timely support from its major shareholder has so far prevented any breaches of the sukuk terms, and is expected to be forthcoming to ensure continuous adherence to transaction terms and supportive of the current AA2 rating in the interim.
ProHAWK and the Ministry of Health have made positive progress in negotiating payment for the additional work. In mid-2022, the Government of Malaysia gave their approval for the payment of additional revenues to the Company, to be executed via a Supplementary Concession Agreement (SCA). While the retrospective revenues are sufficient to resolve ProHAWK’s immediate liquidity needs, the terms and timing of payments remain uncertain until the SCA is executed. The rating outlook will be reverted to stable once the SCA is executed as anticipated and sufficient comfort is derived on the commencement of agreed payments.
Assuming the revenues are received only in July 2024, the Company’s annual FSCR (with cash balances) may fall to 1.09 times on the payment date in December 2023, translating to a cash deficit of RM37 mil and an RM24 mil shortfall against the required FSRA balances under our sensitivity analysis. Lower than expected ICT OMS revenue and/or delays beyond that assumed in our assessment may prolong cash flow recovery and covenant breaches.
In the interim, UEM Group Berhad, as the Company’s major shareholder, is committed to ensuring ProHAWK meets covenants under the IMTN programme. UEM provided financial support during the construction stage (via a letter of undertaking) to ensure the completion of the hospital, as well as standby letters of credit (SBLCs) to address previous FSRA shortfalls. Cumulative SBLCs procured to date in supporting ProHAWK amount to RM167 mil.
As at end-March 2023, ProHAWK had received payments for all Availability Charges and AMS Charges outstanding up to February 2023. The average contractual concession payments collection period improved to 2.4 months in FY Dec 2022 (FY Dec 2021: 2.9 months). AMSC deductions, meanwhile, averaged higher at 10.9% in FY Dec 2022 (FY Dec 2021: 8.8%), mainly due to challenges in procuring obsolete spare parts, managing critical events and the timeliness of technical report submission. Going forward, ProHAWK aims to reduce deductions to 8% or lower. In this regard, we are reassured by the Company’s back-to-back deduction arrangement with the sub-contractor, Edgenta Healthcare Management Sdn Bhd.
(603) 3385 2517
Thong Mun Wai
(603) 3385 2522
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Ratings on Konsortium ProHAWK Sdn Bhd