Inkosi Albert Luthuli Central Hospital
African PPP/Healthcare Deal of the Year 2002
Closed in March 2002, just 12 months after mandating, the Inkosi Albert Luthuli Central Hospital (IALCH) set a new benchmark in South African PPP progression. IALCH was both the first PPP health deal in South Africa and the first concluded under the new treasury regulations embodied in the Public Finance Management Act (PFMA). It has also proved, and for the first time, that PPP can work at provincial level in South Africa ? thus broadening the realisable scope of the whole South African PPP programme.
Solely arranged and underwritten by Rand Merchant Bank , the project (total real value $409 million), was initiated by the Kwazulu Natal Provincial Government (KZN) through its Department of Health (DoH). The deal comprises a R300 million ($27 million) 7-year loan and a $220 million currency swap facility ? the first of its kind in South Africa.Under advisory from PricewaterhouseCoopers, the Durban DoH issued a request for proposals for the provision of medical equipment, IM&T systems, facilities management and related services through a 15-year concession in November 2000. The Impilo Consortium ? comprising Siemens; AME; Drake & Skull; Vulindlela Holdings; Omame Investments; Mbekani Health & Wellbeing ? was nominated as preferred bidder in March 2001. The IALCH Project is an 846 bed referral hospital located in the Cato Manor area of Durban, Kwazulu Natal Province. It comprises out-patient, in-patient, daycare, high care, intensive care and trauma facilities, and will be the main tertiary care hospital for the Province. with the objective of providing KwaZulu Natal with an advanced and efficient state-of-the-art referral hospital. The hospital is the first filmless and paperless hospital in Africa, including the patient record system. And the extent and scope of the FM services that have been outsourced, in particular the soft FM services, is also a world first. The project also incorporated unprecedented levels of black economic empowerment participation in South Africa ? at a shareholding and service content level. Co-sponsor Vulindlela is a black owned and managed company based in Kwazulu Natal, with 5 years operating experience and prior PPP involvement through the first privatised maximum security prison in South Africa. Omame and Mbekani are black owned women groups with interest in health and facilities management. And in order to meet the output specification requirements of the DoH, Impilo has in turn entered into a set of sub-contract arrangements with dedicated SPV's. These sub-contract joint ventures also involve empowerment parties in the provision of content to the hospital.The concession agreement is built around two key points. First the DoH will pay a monthly service fee to Impilo, indexed annually to CPIX, and subject to a penalty regime based on contractual performance. Second, to ensure cost efficiency, as well as to provide appropriate control mechanisms for the DoH, a unique deferred equity and capital replenishment fee payment structure was developed by Rand.In addition to the initial capital expenditure programme, there is a substantial capital refreshment programme and the normal refurbishment and maintenance obligations over the full 15-year concession period. There are also specific residual value and operating requirements to be met upon handover of the hospital at the end of the concession.These issues posed two problems for the financing team. First, given that the revenue is Rand based and the capital refreshments are substantially Euro and US dollar based, there is a major currency risk. Impilo and the DoH needed to cut this risk to protect their investments as well as the long term service delivery commitments to KZN. Second, Impilo had a sustained but irregular funding requirement.Rand developed a unique structured term currency swap to solve the problems. The structure incorporates, in combination with certain Euro and US dollar fixed price contracts from suppliers, the effective elimination of all of the currency risk for the full 15-year period.An escrow mechanism also initially governs the financial control and management of the refreshment programme between Rand, Impilo and the DoH while a structured date and cashflow structure meets the long-term needs of the project. Lending was arranged and underwritten to facilitate the unique spending profiles within the project. The deal also uses flexible fixed rate lending to protect and smooth the cashflows required under the swap component of the structure. Credit enhancement mechanisms deal with the consequent 15-year counterparty risk to Impilo. There is also linkage to the concession agreement in respect of an appropriate early termination structure, but more importantly, to provide the concessionaire with step-in rights into elements of the financial structure in order to allow them to protect health service delivery to KZN. Legal counsels on the deal were White & Case for KZN and Deneys Reitz for Impilo. IALCH is a benchmark for South African PPP. This is not a bricks and mortar deal but the provision of equipment, facilities and management commodities that are hard to quantify in terms of financing. Impilo is to carry out remedial works but has relinquished the right to claim back from the DoH any costs for putting right works previously carried out. The deal has all the hallmarks of a maturing PPP market and is certain to be widely copied if the first years of operation and debt repayments run smoothly.The hospital was officially opened in Cato Manor, Durban on 22 November 2002 by the Deputy President of South Africa, Jacob Zuma, and the National Minister of Health, Mrs Tshabalala-Msimang.
Inkosi Albert Luthuli Hospital
Status: Syndicated December 17 2002
Total project value: $409 million
Project debt: $250 million
Location: South Africa
Sponsors: The Impilo Consortium ? comprising Siemens; AME; Drake & Skull; Vulindlela Holdings; Omame Investments; Mbekani Health & Wellbeing
Description: First PPP funding for provincial hospital
Arranger and underwriter: Rand Merchant Bank
Concession awarder: Government of KwaZulu Natal
Financial advisor to concession awarder: PricewaterhouseCoopers
Technical advisor to the concession awarder: EC Harris
Legal counsel for concession awarder: White & Case
Legal counsel for the consortium: Deneys Reitz
Closed in March 2002, just 12 months after mandating, the Inkosi Albert Luthuli Central Hospital (IALCH) set a new benchmark in South African PPP progression. IALCH was both the first PPP health deal in South Africa and the first concluded under the new treasury regulations embodied in the Public Finance Management Act (PFMA). It has also proved, and for the first time, that PPP can work at provincial level in South Africa ? thus broadening the realisable scope of the whole South African PPP programme.
Solely arranged and underwritten by Rand Merchant Bank , the project (total real value $409 million), was initiated by the Kwazulu Natal Provincial Government (KZN) through its Department of Health (DoH). The deal comprises a R300 million ($27 million) 7-year loan and a $220 million currency swap facility ? the first of its kind in South Africa.Under advisory from PricewaterhouseCoopers, the Durban DoH issued a request for proposals for the provision of medical equipment, IM&T systems, facilities management and related services through a 15-year concession in November 2000. The Impilo Consortium ? comprising Siemens; AME; Drake & Skull; Vulindlela Holdings; Omame Investments; Mbekani Health & Wellbeing ? was nominated as preferred bidder in March 2001. The IALCH Project is an 846 bed referral hospital located in the Cato Manor area of Durban, Kwazulu Natal Province. It comprises out-patient, in-patient, daycare, high care, intensive care and trauma facilities, and will be the main tertiary care hospital for the Province. with the objective of providing KwaZulu Natal with an advanced and efficient state-of-the-art referral hospital. The hospital is the first filmless and paperless hospital in Africa, including the patient record system. And the extent and scope of the FM services that have been outsourced, in particular the soft FM services, is also a world first. The project also incorporated unprecedented levels of black economic empowerment participation in South Africa ? at a shareholding and service content level. Co-sponsor Vulindlela is a black owned and managed company based in Kwazulu Natal, with 5 years operating experience and prior PPP involvement through the first privatised maximum security prison in South Africa. Omame and Mbekani are black owned women groups with interest in health and facilities management. And in order to meet the output specification requirements of the DoH, Impilo has in turn entered into a set of sub-contract arrangements with dedicated SPV's. These sub-contract joint ventures also involve empowerment parties in the provision of content to the hospital.The concession agreement is built around two key points. First the DoH will pay a monthly service fee to Impilo, indexed annually to CPIX, and subject to a penalty regime based on contractual performance. Second, to ensure cost efficiency, as well as to provide appropriate control mechanisms for the DoH, a unique deferred equity and capital replenishment fee payment structure was developed by Rand.In addition to the initial capital expenditure programme, there is a substantial capital refreshment programme and the normal refurbishment and maintenance obligations over the full 15-year concession period. There are also specific residual value and operating requirements to be met upon handover of the hospital at the end of the concession.These issues posed two problems for the financing team. First, given that the revenue is Rand based and the capital refreshments are substantially Euro and US dollar based, there is a major currency risk. Impilo and the DoH needed to cut this risk to protect their investments as well as the long term service delivery commitments to KZN. Second, Impilo had a sustained but irregular funding requirement.Rand developed a unique structured term currency swap to solve the problems. The structure incorporates, in combination with certain Euro and US dollar fixed price contracts from suppliers, the effective elimination of all of the currency risk for the full 15-year period.An escrow mechanism also initially governs the financial control and management of the refreshment programme between Rand, Impilo and the DoH while a structured date and cashflow structure meets the long-term needs of the project. Lending was arranged and underwritten to facilitate the unique spending profiles within the project. The deal also uses flexible fixed rate lending to protect and smooth the cashflows required under the swap component of the structure. Credit enhancement mechanisms deal with the consequent 15-year counterparty risk to Impilo. There is also linkage to the concession agreement in respect of an appropriate early termination structure, but more importantly, to provide the concessionaire with step-in rights into elements of the financial structure in order to allow them to protect health service delivery to KZN. Legal counsels on the deal were White & Case for KZN and Deneys Reitz for Impilo. IALCH is a benchmark for South African PPP. This is not a bricks and mortar deal but the provision of equipment, facilities and management commodities that are hard to quantify in terms of financing. Impilo is to carry out remedial works but has relinquished the right to claim back from the DoH any costs for putting right works previously carried out. The deal has all the hallmarks of a maturing PPP market and is certain to be widely copied if the first years of operation and debt repayments run smoothly.The hospital was officially opened in Cato Manor, Durban on 22 November 2002 by the Deputy President of South Africa, Jacob Zuma, and the National Minister of Health, Mrs Tshabalala-Msimang.
Inkosi Albert Luthuli Hospital
Status: Syndicated December 17 2002
Total project value: $409 million
Project debt: $250 million
Location: South Africa
Sponsors: The Impilo Consortium ? comprising Siemens; AME; Drake & Skull; Vulindlela Holdings; Omame Investments; Mbekani Health & Wellbeing
Description: First PPP funding for provincial hospital
Arranger and underwriter: Rand Merchant Bank
Concession awarder: Government of KwaZulu Natal
Financial advisor to concession awarder: PricewaterhouseCoopers
Technical advisor to the concession awarder: EC Harris
Legal counsel for concession awarder: White & Case
Legal counsel for the consortium: Deneys Reitz
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