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26 Oct | Friday
RAM Ratings reaffirms Konsortium ProHAWK’s IMTN rating
RAM Ratings has reaffirmed the AA2/stable rating of Konsortium ProHAWK Sdn Bhd’s (ProHAWK or the Company) RM900 million Islamic MTN (IMTN) Programme (2013/2033). The reaffirmation of the rating reflects our expectation that ProHAWK will register a minimum finance service coverage ratio (FSCR) of 1.50 times throughout the tenure of the IMTN. 
 
ProHAWK has been encountering multiple delays in the construction and completion of its concession project, i.e. the Women and Children Hospital (WACH or the Project), due to prolonged testing and commissioning of equipment, as well as requests for design changes. Nevertheless, ProHAWK completed the Project in September 2018, and the Government of Malaysia (GOM) has accepted the WACH on 28 September 2018. With the completion of the WACH, ProHAWK will be entitled to a predictable stream of concession payments from a strong counterparty, i.e. the GOM via the Ministry of Health, as per the Concession Agreement (CA). 
 
Given that there are still outstanding rectification works to be completed after the acceptance of the Project, ProHAWK has provided a Letter of Undertaking (LOU) to the GOM to complete these works within a stipulated time frame. In the event ProHAWK fails to comply with the LOU, the GOM is entitled to deduct a sum of RM88,130.80 per month from the Company’s Asset-Management Services Charges. This will have a minimal impact on ProHAWK’s ability to service IMTN, as the servicing of the obligations under the IMTN relies on the Availability Charges.
 
ProHAWK derives strong support from its shareholders, particularly UEM Group Berhad (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. 
 
We draw additional comfort from the tight financing structure and restrictive covenants that safeguard the project’s cashflow. These include limits on distributions to shareholders and payments on subordinated shareholder advances. Distributions are only allowed after the first redemption of the IMTN, provided that the FSCR is maintained at a minimum of 1.50 times after such payment is made.
 

ProHAWK is exposed to the risk of termination of the CA. While the probability of termination due to default by the GOM is deemed unlikely, default by ProHAWK is possible. Should the CA be terminated during the asset-management services period, the IMTN holders will be protected as the GOM will have to pay the financing amount taken to construct the Project.
 
As with other private-finance-initiative (PFI) transactions, the timeliness of monthly concession payments from the GOM is 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 other government buildings in terms of scope and service levels. This is, however, alleviated by the engagement of Edgenta Healthcare Management Sdn Bhd, a unit of UEM Edgenta Berhad – an experienced provider of hospital support services.
 
ProHAWK holds the concession to design, construct, commission and maintain the WACH. It is a 65:35 joint venture between UEM and Najcom. 
 
 
Analytical contact
Karin Koh, CFA
(603) 7628 1174
karin@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 26 October 2018
 
 
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
 
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
 
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
 
Published by RAM Rating Services Berhad
Ó Copyright 2018 by RAM Rating Services Berhad
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