RAM Ratings reaffirms AA2 rating of ProHAWK's IMTN

Published on 21 August 2015

RAM Ratings has reaffirmed the AA2/Stable rating of Konsortium ProHAWK Sdn Bhd’s (ProHAWK or the Company) Islamic Medium-Term Notes Programme (IMTN) of up to RM900 million.
The rating reflects ProHAWK’s strong debt-servicing ability that is backed by predictable contractual cashflow. ProHAWK will receive a stream of concession payments over 27 years in the form of Availability Charges and Maintenance Service Charges subsequent to the completion of the 600-bed Women and Children Hospital Project (the Project) in 2016. Accordingly, the Company is expected to register a robust projected stressed minimum finance service cover ratio (FSCR) of 1.50 times. Counterparty risk is deemed low as the obligor of the concession payments is the Government of Malaysia (GOM), with funds allocated through the Ministry of Health.
We also draw comfort from various measures in the financing structure of the transaction which minimise cashflow leakage, including limits on ProHAWK’s activities and indebtedness. Concession payments will be directly deposited in to key designated accounts operated by the Facility Agent, which will strictly manage cash inflows and outflows. Distributions to shareholders and payments in respect of subordinated shareholder advances will only be allowed after the first redemption of the IMTN, provided that the FSCR does not dip below 1.50 times after such payments are made.
However, compared to other RAM-rated private-finance-initiative (PFI) transactions, construction risk in the Project is technically higher as it involves the provision of medical equipment and related mechanical and engineering works. Furthermore, asset management services for hospitals are more complex than that required for other government buildings in terms of scope and service levels. Nonetheless, these concerns are mitigated by strong support from UEM Group Berhad (UEM). The Company’s shareholders have provided IMTN holders with a joint and several undertaking to fund any shortfall in costs required to complete the construction of the Project, including profit payments and applicable penalties under the relevant Project documents. As at end-May 2015, construction remained ahead of schedule and on track to meeting the 36-month timeline specified in the CA.
As with other PFI transactions, the timeliness of monthly concession payments from the GOM will be a key risk factor post-completion of the Project, as ProHAWK will rely heavily on these payments to meet its obligations under the IMTN. That said, the Finance Service Reserve Account, which will have a minimum balance equivalent to the principal and profit due on the IMTN for the next 6 months, provides a buffer in the event of payment delays.
The transaction is exposed to the risk of termination of the CA. Non-performance on the part of either ProHAWK or the GOM could trigger termination. While termination due to default by the GOM is seen to be remote, default by ProHAWK is possible, especially during the construction stage. Nevertheless, IMTN holders will be fully compensated in such an event, after the Project’s completion.
ProHAWK is a single-purpose company established to design, finance, develop, construct and commission the Project within Hospital Kuala Lumpur and to carry out asset management services for the Project, under a 30-year CA with the GOM. The Company is a 65:35 joint venture between UEM and Najcom Sdn Bhd.

Media contact
Jason Tan
(603) 7628 1030
Jasontan@ram.com.my