FAQ

Kuwait Health Assurance Company

(Under Establishment)

Frequently Asked Questions

1. Does the Strategic Investor have to be a locally publicly listed company? This was announced during the presentation however has no mention of it in the “Green Book”.

No.

2. How many people are allowed to access the data room? From the Strategic Investor side and the Technical Team side. And can certain company buy access to enter and then any other related entity can go bid?

Five people at a given time are allowed to access the data room. Only the entity that purchased access and entered the data room is allowed to bid.

3. Do the names of the consortium members have to be disclosed to the KIA or the government when submitting the bid (i.e. in Envelope A and/or Envelop B)?

Yes.

4. Will sister companies be allowed to bid along with the mother company however on two separate bids?

Yes

5. Will the KIA allow for the model information that will be made available in the Data Room to be copied onto a memory stick or CD? This will facilitate the Technical Team’s ability to work with the data outside the data room hours, thus developing more pertinent and direct questions for The Advisory Group (TAG) and KIA during the times that the data room is open.

TAG cannot and will not release any model. Model simulations will be available on daily basis for entrants to the data room. All questions and answers pertaining to how to will be answered. This is standard operating procedure in any transaction.

6. How will KIA address the situation if only 1 or 2 groups bid on the project? Is there a strict requirement for the KIA to have 3 bidders on this KHAC opportunity?

More than one is required for the bid process. In the event of having only 1 bidder, the Establishing Committee will consider postponing the Auction.

7. The section stating that an amount of KD 49,608,000 that has to be paid by the winning bidder as 60% of the nominal value of the investor’s subscription of 26% of the Company’s capital, needs clarification. Is the authorized capital of KHAC KD 318,000,000 and paid up capital 191,000,000 (60% paid)?

The feasibility study was built to reflect total capital requirements of KD 318 MM to include working capital. The feasibility assumed that 60% of the capital requirements will be equity contributions reflecting the 24%:50%:26% structure. The establishing committee opted to capitalize the company at KD 318 MM and only call 60% of the capital leaving the prospective board of KHAC with the option to either call the remaining capital or decrease the capital of the Company to KD 192 MM.

*The Committee recently changed the percentage of capital called at the beginning from 60% to 30%.

8. Who will be responsible for collecting the premium – the Kuwait Ministry of Health or the KHAC? This question relates to who is receiving the premium payments and how that is anticipated to be managed in terms of the sharing of that revenue?

The premium should be collected by the Company or an authorized reseller or agent.

9. Can premiums be offered to the ineligible expatriates? And will there be limits to the price and benefit of such premiums?

The only limitation that the Company operations has to abide to is offering health plans which, at least, meet the scope of coverage noted under law number 1/1999 for the noted fees to the eligible population. If the Company sees that it would be profitable to offer other product lines, insurance or other, to any other population groups, such is a call that the Company will need to make.

10. Will the Ministry of Health commit to a firm time period for the facilitation of the licensure, certification and delineation of clinical privileges for any incoming work force?

The MOH has committed to facilitating the same. No firm time commitments were noted. Such will need to be negotiated with the MOH.

11. Will the 5% MOH premium carve‐out for tertiary services include appropriate follow‐up care related to the original diagnosis, including ancillary services; will co‐morbidities also be covered by the MOH?

The MOH has committed to treating all tertiary care as well as those services that private sector is not allowed to provide against the 5% carve-out. The Company will need to negotiate a contractual agreement with the MOH that addresses comorbidities. However, it is assumed, and factored, that KHAC will need to cover the scope of clinical services that is considered primary and secondary care in nature while the MOH will take care of tertiary care ailments.

12. Is there any mechanism for further adjustments to the premium other than the bi‐annual increases and the additional inflationary premium adjustments? Clearly the issue here is the healthcare inflation globally is increasing at higher rate than normal inflation.

The exemptions and allowance noted in the document reflect the extent to which the MOH has agreed to commit to at this stage. If the MOH decides to grant further allowances, then such will need to be addressed directly between the MOH and the Company.

13. To what extent are the parameters and the assumptions outlined in the feasibility study restricted? Can there be a change in the project layout and the assumptions placed by TAG? For example can we assume that the medical equipment are leased and not bought at capital cost?

The answer to the example noted in your question is yes. Other examples will need to be viewed on individual basis.

14. Under what conditions can the KHAC deny care to an individual expatriate member?

As a private hospital operating in the State of Kuwait, it is the duty of KHAC facilities to respond to emergencies irrespective of the guarantor. KHAC can only deny care to non-subscribers presenting with non-urgent complaints and who do not wish to pay for that on fee for service basis.

15. Under what provisions/conditions can the free rent period be extended? i. If the government fails to act during the development phase this could place a significant burden on the KHAC.

There are no condition for free rent extensions

16. Will active recruitment of existing MOH physicians and clinical staff by KHAC be permitted?

This will be subject to the existing Kuwait Labor Laws covering staff resignation from governmental jobs and joining private sector entities. Recruitment will be similar to the methods followed by any private sector company

17. Is there a dividend yield structure the KHAC will be obliged to follow?

Strictly for purposes of the feasibility study, a 25% dividend distribution was assumed.

18. Traditionally there is a Kuwaiti national employment requirement for government sponsored public shareholding companies, how will that be defined in the case of the KHAC? By employee category, overall percentage, or no requirement? i. Does the KHAC have the ability to reject the employment of Kuwaiti national employee’s as an undue impact on the business?

The Company will conduct its business as any other private company would and will be subject to nationalization regulations.

19. Kuwaiti doctors that were sent by government scholarships to obtain their degree are obliged to work in government hospitals for a number of years (otherwise pay a fee to the government in return to the tuition fees that were paid during their study abroad). In the future will the government take any initiatives in obliging graduated doctors to work in hospitals associated with KHAC?

KHAC is a private sector enterprise which was granted a specific set of allowances by the MOH. Any other allowances or exceptions will need to be negotiated with MOH.

20. The “Green Book” states that when submitting the bid, any amount of the Financial Bid that is in excess of the nominal value (“incremental auction value”) will be made to the Kuwait General Reserve. In case of project cost overrun, can it be ploughed back to The Company’s capital base?

As per law No: 9/2010 the answer is no.

21. Allocation of land: Has any rate/sqm been agreed with governorates? What is the basis of land cost assumption in the business plan?

The feasibility study assumes KD 3 per sqm per annum for the first 6,000 sqm and 250 fils for each additional sqm rental fee per annum.

22. What is MOH commitment for land required for clinics?

The MOH is committed to facilitate the licensure process and to grant the company the required number of licenses.

23. Additional services scope: For example if The Company wish to start diagnostic centers/laboratories, can it do so on a separate pricing basis? Will it amount to breach of agreement on approvals received from government as per clause 2.3

The Company is committed to realize the scope of services representing its raison d’être. As long as the “additional” scope is “additional to its core mandate” then the Company remains a private sector enterprise free to pursue business opportunities deemed appropriate by its board.

24. Who will handle vaccination program for this market segment?

School health is a “reserved” function to the MOH. To date, no clear direction is available from the MOH on private sector vaccination.

25. There is provision to increase assurance premium if inflation goes above 6%.

i. Firstly there is time lag in reporting official inflation number so a practical difficulty.

At the time an official inflation figure is reported then the clause applies. Such clause will apply until the term a new inflation rate is announced by the Government.

ii. Secondly, will this provision not applied to copayments. For example, there appears to be a mismatch in revenue & cost growth assumptions in business plan in the sense that “the percentage of total expenses to total co-payment revenue” increases in business plan period suggesting a possible case for increasing co-payment.

The growth in expenses is based on variable cost of pharmaceuticals and medical disposables associated with business activities. The inflation rate applied to such is 5%. The changes in the copayment structure are reflected in the copayment schedule. No inflation was assumed in excess of 6% in the financial model or the forecasts.

iii. Third, will inflation formula also apply to tertiary service contract?

Tertiary care contract is set at 5% of premium. If that premium increases as per the rate schedule or due to inflation or both then the KD equivalent of the 5% will change (as opposed to the rate).

26. Tertiary service contract – Will the government guarantee in the contract a feasible number of beds reserved for expat population?

Such will need to be negotiated with the MOH. However, the MOH is committed to meeting their healthcare needs.

27. Health card replacement by assurance policies procedure and maintenance of data base to link it with immigration department – Who will bear the cost?

Once the Company is formed, an official workgroup will need to be established to structure the process. Prior to 2006, the MOH used to let the MOI know of “approved” policies and the process was smooth. The process is simple…the MOI will not stamp a visa until a valid policy is presented.

28. Medical history cost – How will this materialize in terms of integration into IT system of The Company? Will MOH bear/share the cost of first time integration?

Cost sharing is not assumed in the business plan. A mechanism for granting access and information sharing will need to be negotiated with the MOH.

29. Will The Company receive any government commitment on debt capital funding? Will it receive any subsidized cost of funding?

There is no obligation on the Government to commit to any funding.

30. How much is MOH going to save in budget expenditure from this project? How is it different from business plan? What are the key drivers – revenue or cost?

The MOH is fully committed to realizing the project. The savings of the MOH are not considered a factor in examining the feasibility of the project from an investor’s perspective.

31. Will we get to see a linked model in excel form with detailed line by line assumptions to derive free cash flow by years?

Yes. , it is available in the data room.

32. Bed/1000 population ratio comes to 0.86 beds, based on 1.5 million population. Isn’t that on lower side compared to global standards of 3 to 3.5 beds which includes tertiary care? How much should we discount for tertiary in this ratio?

The indicator noted is not considered a planning indicator. That is to say, you do not plan services based on that. Planning Beds/1000 population is based on the age strata and utilization indicators.

33. What is basis for the lease rental agreements for the designated plots of land for the KHAC hospitals?

As per applicable laws and regulation.

34. The “Green Book” states that the Company’s Memorandum of Association should be compliance with Islamic Sharia. Does the Sharia principles govern the Company’s operations only or does it also affect the Company’s financing? (i.e. is the Company restricted to obtain lending from Islamic banks?)

The Sharia principles govern the Company’s operations and financing.

35. In terms of the board control the Strategic Investor will have, how many board seats will it be entitled too? Please confirm the four out of seven members and whether any conflict with the commercial law.

The strategic investor will have four seats out of seven and this does not conflict with the commercial company’s law.

36. What are the consequences if in 1 January 2015, the KHAC was unable to flip the switch on all hospitals and PCCs? Any penalities?For example considering the prevailing statutory authorities approval procedures in Kuwait and also the fact that the land plots for the 12 PHCs have not yet been identified/acquired/registered, it is believed that 3 years to identify/acquire/register the PHC plots, plan, design, build, equip, and commission the 3 Hospitals (the largest being 712 beds) and 14 PHCs might be a little tight and optimistic.

There will be no penalties.

37. 50% of the shares will be offered to Kuwaiti nationals through an IPO. Who underwrites any shortfall in subscription?

The government and thereafter transferred to the Strategic investor.

38. Who will be in charge of coordinating the needed pre‐approval agreements between local municipalities?

The Company’s management.

39. Kindly clarify the statement in the “Green Book” that states that the government will grant the Company a three year grace period during which the Company will need to obtain licenses and realize facilities.

This means three years of land occupation without paying any rent.

40. What is the guarantee that the premiums will remain firm throughout the projection period? We leave this for the establishing committee to answer

What is the mechanism to prevent the government from making negative premium adjustments during this period or for the KHAC to protect itself against a negative decision?

No mechanism

41. Please clarify the tax exemption status specified in the Green Book.

Please review the related laws which are (a) law no: 3/2007 and (b) law no:8/2001

42. What guarantees that the government will not establish another competing company before completion of the 15 years of “benefit grants”? Or give future competitors more favorable conditions?

No Guarantees

43. Verbal discussion highlighted that the government is understanding that due to the limited time frame for construction/recruitments and full operations - “flip the switch” in 2015, it will be understanding on phasing out of facilities, recruitment etc.. How is this understanding planned to be documented? Or what are the penalties for non performance or delays?

No Penalties by the government

44. It is mentioned that the strategic partner will have majority board seats for at least initial 3 terms. How long is each term? 3 years What will change in board election procedure after 3 terms? Please refer to the commercial company’s law Initial term period includes or excludes pre-operation period?

Includes pre-operation period

45 Requirements of strategic partner:

i. Please clarify what you mean by valid authorization from board. Do you mean validity of resolution as per the partner’s internal approval process?

Valid authorization from board means a board resolution issued correctly as per the applicable commercial company’s law.

ii. Do we need to resubmit rating analysis documents in envelope A, if these are already shared with CSR?

Kuwait Health Assurance Company

Legal FAQ

1. Will there be any additional fees to the MOH and/or other regulatory bodies besides the 5% per premium? What if a patient requires substantial coverage due to a particular challenging case?

In relationship to the care that KHAC’s beneficiaries will be receiving, KHAC will be responsible for covering all primary and secondary care services while the MOH will cover tertiary care services as well as those services included under law number 1/1999 but private sector is not permitted to cover. The cost to KHAC for having the MOH provide such services is 5% of the premium KHAC collects per member per year. No other costs for provision of care are noted in the auction document or feasibility study.

2. Which authority will determine the inflation rate of 6% or higher and how will this be communicated and authorized to KHAC for increasing its rates accordingly under MOH’s mandate?

The relevant authorities which communicate inflation rates are MOC and MOF. Once such rates are officially released, KHAC has an automatic preapproval for increasing its rates accordingly.

3. Can a certain company buy access to enter and then any other related entity can go bid?

Only the entity that purchased access and entered the data room is allowed to bid.

4. If the government chooses to seize the land after 20 years, despite an approval to grant a renewal, would the government offer any type of compensation?

The relationship between the GOK and KHAC will be governed by the land lease agreement. All relevant clauses and pertinent information will be included there.

5. What will define secondary vs. tertiary care treatments?

KHAC and MOH will need to outline, based on an internationally recognized disease classification system (ICD 10 AM or DRGs) those services that the MOH will provide versus those the HMO will provide. The rule is all tertiary care will be covered by the MOH. In anticipation of any potential risk, TAG allowed for an excess of 92% of all visits, discharges, and surgeries to be performed by KHAC.

6.If a need arises for outside consultancy to be brought in for a particular case within the scope of treatment under KHAC (therefore, for higher quality services), would KHAC be able to charge the patient extra accordingly?

The copayments that KHAC is allowed to levy are clearly outlined. These are the only copayments that beneficiaries should make.

7. The question is with reference to an article in Alqabas today regarding the project, namely the fact that the ‘strategic investor’ will be responsible for the 50% share subscription if there is a shortfall – so as per example in the article, a 25% shortfall would mean that the strategic investor would ultimately be responsible for paying an additional KD 75 million to cover this gap. Can you confirm this statement and if this is in fact the case and does it refer back to a stated law? If this is not a legal issue then can you kindly submit to the appropriate KIA committee to follow up on. This is very important to understand. Please clarify.

For now and according to law number 9/2010, the excess shares that are not subscribed are to be covered by the strategic investor at the premium price. However, the committee is considering a more appropriate solution, if one is found it will be announced.

8. Post public offering, are the public investors allowed to sell their share before 9 years of lock up period imposed on the managing partner?

Yes

9. How will this be monitored legally?

As per the currently applicable Kuwaiti laws

10.If there are more than one company partnering to bid for the shares, will they have to specify their own partnering percentage before they submit the bid for the 26% stake?

Yes

11. If there are more than one company partnering to bid for the shares then after winning the bid can they use those shares to establish a new company? (For e.g., there are two companies ( x & y) who jointly win the bid then post winning can they establish a new company by transferring those shares in the new company’s name)

As per the procedures the winning bidders are to invest in KHAC directly. However, if KIA approves then this suggested new company may be established.

12. When can KHAC get listed on KSE?

As per the Capital Market Authority law

13. What other facilities could be built on the lands apart from the hospital and supporting functions?

Only KHAC related facilities

14. In case the public portion ( %50) have not been fully subscribed, how would that affect the auction winner's stake? What government decisions have been taken to deal with such scenarios?

15. What is the process after winning the bid?

Finalize the KHAC establishing procedures

16. What contract will be signed with the Auction winner covering all statements and assumptions stated in green book and/or discussed in meeting etc. How would guarantees and obligations be enforced? ( e.g. 9 years holding )

There will be no contracts signed with the Auction winner

17. Is it possible to have a non Kuwaiti partner joining a consortium of Kuwaiti companies?

It is possible if such non-Kuwaiti partner is listed in the KSE or is approved by the council of ministers.

18. If Insurance companies offer competitive rates through private hospitals will they be banned?

To our understanding the answer is No.

19. No exit for 9 years. Exit policy is not clear

This means that the Strategic investor is to keep his ownership in the Company for a period of 9 years.

20. As monopoly is illegal, where are the conditions of a ‘health system’ stated as those that need to be abided by for another entity to compete with KHAC?

To our understanding, the documents regulating the conditions needed for another entity to establish a health system to compete with KHAC are with the KIA and to be shown to the investors in the data room.

Refer to auction document and relevant documents in the data room.

21. Who is responsible for any delay on approvals of land, building permits, services permits, utilities licenses, etc. that can affect the project? No one, the Company will work on obtain approvals similar to any other private company Will there be any compensation from the government due to such delay(s)? No

The auction document did not note any penalties on delays. However, it is to the best interest of KHAC and its shareholders that operations start as soon as possible. Accordingly, KHAC will need to demonstrate to its stakeholders and related regulatory bodies that its infrastructure development activities to realize operations are well planned and that delay, if any are not due to its lack of planning or lack of action.

22. If the government chooses to stop the project before 20 years, what arrangements (if any) are in place to compensate KHAC shareholders?

No arrangements are in place

The feasibility study has 10 year financial projections from date of KHAC operations. Investment decisions will need to be based on the strategic partner’s own due diligence and risk assessment tools.

23. In order to incorporate this within the project’s feasibility study, is there anything in writing that allows for services to be provided outside of the scope listed (i.e. General medical, labs and x-rays, surgery with the exception of plastic surgery, treatment and medication, hospital admission in normal and emergency cases, normal dental, and medication)?

KHAC is planned to be a Shareholding Company providing medical and health assurance services and operating as a private sector enterprise. As long as KHAC fulfills its core mandate noted in the feasibility study, nothing prevents the Company from providing additional healthcare services as long as it meets licensure and certification requirements and permits from respective regulators.

24. If target market (Category 6) increases significantly, will new health systems be created/established under the government’s mandate or will KHAC be given the opportunity to scale up its operations as a right of first refusal?

As a private sector enterprise, KHAC is free to take upon itself initiatives to further expand its network and scope of services to meet additional demand.

25. Will the government guarantee the project in order to facilitate its financing?

The project is integral to the Country’s sanctioned development plan. Currently discussions are underway between the GOK and Central Bank/Banks to establish the mechanism to fund debt requirements of development plan projects. If funding is deemed necessary by KHAC’s Board (as opposed to calling remaining capital), then the project will be able to benefit from the noted mechanism once concluded.

26. What protection will the Strategic Investor have towards the MOH’s right to service a portion of the intended target population (Category 6)? Is there a limit or certain cap to the percentage or number of patients that the MOH can choose to re-include within its primary and secondary services coverage?

Kindly refer to relevant sections of the auction document and related data room documents addressing the same.

27. Will the government create one entity to manage all approvals that KHAC will have to seek, or will it stay as is where KHAC will have to go to separate government entities/authorities to obtain the needed approvals? If one entity, is there anything in writing to support this?

Please note that KHAC is integral to the sanctioned GOK development plan. The infrastructure issues which KHAC could face appear to be similar to what other development plan projects could be susceptible to. Accordingly, if the GOK undertakes an initiative to facilitate such processes, then KHAC is in a position to benefit from the same.

28. If the government chooses to seize the land after 20 years, despite an approval to grant a renewal, would the government offer any type of compensation?

The relationship between the GOK and KHAC will be governed by the land lease agreement. All relevant clauses and pertinent information will be included there.

29. What will define secondary vs. tertiary care treatments?

30. What happens in the case that new approvals/permits are required to meet increased demand after 15 years; will the government exceptions no longer be valid to support the granting of such approvals and/or permits?

As it stands today, MOH approvals cover 15 year period from date of KHAC incorporation.

31. Is a government guarantee regarding the taxation of KHAC needed?

è Tax exemption is not guaranteed (page 9) and 4.5%

The question is not clear, however there are no tax exemption unless applicable as per applicable taxation laws.

32. Which guarantees regarding the land are needed?

a. Possibilities to use the land for other purposes by 3rd parties (page 9)

Not possible

b. Possibilities to use the land for other purposes by KHAC(page 9)

Only activities which fall within the scope of KHAC’s purpose are permissible

c. Are there any limitations to the use of land?

Yes, not to use the land for a purpose other than it was rented for.

33. Healthcare approvals?

a. Guarantees to the definition of ”Health System”? (page 9)

- What happens if definition of Health System will be changed? The company may recourse on the approving authority which defined the health system if such change was harmful to KHAC Is that legally possible? Yes Then KHAC should be compensated for loss of market share.

b. Are there any regulations from the Ministry of Commerce or other governmental entities existing or coming up, which could have influence on the feasibility of the project? (e.g. regulations regarding insurance / assurance model, purchasing or land usage)

Not to our knowledge. Furthermore, the investor has to do his own due diligence with respect to this question.

34. Expiry of the MOH approvals after 15 years? (page 11)

a. In the board of KHAC the investor has a majority (4 out of 7) for three terms each three years. Can the government change the majority after that period (9 years)?

The Board will be formulated as per the applicable Companies law regulating such matter.

35. Share transferal? (page 14)

a. What happens with the investors 26% shares inside KHAC, if the BOT will not be extended after 20 years? (e.g. will the government buy the shares for the future value or will it be transferred for free)

This is not a BOT project.