13 June 2013 

RAM Ratings has assigned a long-term rating of AA2 to Konsortium ProHAWK Sdn Bhd's ("ProHAWK" or "the Company") proposed Sukuk Murabahah Programme ("Sukuk") of up to RM900 million, with a stable outlook.

ProHAWK is a single-purpose company formed to finance, develop, design, construct and commission the 600-bed Women and Children Hospital ("the Project") within Hospital Kuala Lumpur and to carry out asset management services for the Project, under a 30-year Concession Agreement ("CA") with the Government of Malaysia ("GOM"). The Company is a 65:35 joint venture between UEM Group Berhad ("UEM") and Najcom Sdn Bhd.

The rating reflects ProHAWK's strong debt-servicing ability that is backed by contractual cashflow. Upon completion of the Project within 3 years, ProHAWK will receive a predictable stream of concession payments over the following 27 years in the form of Availability Charges (subject to meeting financing parameters under the CA) and Maintenance Service Charges. "The Company's debt-servicing ability is viewed as strong, with projected stressed minimum and average Finance Service Cover Ratios ("FSCR") (with cash balances, calculated over a 12-month period on semi-annual principal repayment months) of 1.57 times and 1.72 times, respectively. Counterparty risk is low as the obligor of the concession payments is the GOM, with funds allocated through the Ministry of Health", said Thong Mun Wai, RAM's Head of Real Estate and Construction Ratings.

Various measures in the financing structure of the transaction minimise cashflow leakage. These include limits on ProHAWK's activities and indebtedness. Concession payments will be directly deposited into key designated accounts operated by the Facility Agent, which strictly manages the cash inflows and outflows. Distributions to shareholders and the payment of obligations under subordinated shareholder advances are only allowed after the first redemption of the Sukuk, provided that the FSCR does not dip below 1.50 times after such payments are made and there are no breaches and events of default under the transaction documents.

However, compared to other RAM-rated private finance initiative ("PFI") transactions, the construction of the Project is technically more challenging as it involves the provision of medical equipment as well as 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. During the construction stage, the Company's shareholders will provide Sukukholders a joint and several undertaking to fund any shortfall in costs required to complete the Project and applicable penalties under the relevant Project Documents, should there be delays or breaches of obligations under the CA.

As with other PFI transactions, the timeliness of monthly concession payments from the GOM is a key risk factor post completion of the Project, as ProHAWK will rely heavily on these payments to meet its obligations under the proposed Sukuk. Nonetheless, the Finance Service Reserve Account, which would have a minimum balance equivalent to the principal and profit due on the Sukuk for the next 6 months, provides a buffer in the event of payment delays.

The transaction is exposed to termination risk under the CA. Non-performance on the part of either ProHAWK or the GOM could trigger the termination of the CA. While termination due to default by the GOM is seen to be remote, default by ProHAWK is possible, especially during the construction stage. Nonetheless, Sukukholders will be fully compensated in such an event, after the Project's completion.

-Ends-

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.

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.

Media contact
Thong Mun Wai
(603) 7628 1022
munwai@ram.com.my

Published by RAM Rating Services Berhad
© Copyright 2013 by RAM Rating Services Berhad

© Press Release 2013