MARC has affirmed its AA- and AA-IS ratings on WCT Holdings Berhad’s RM1.0 billion Medium-Term Notes (MTN) Programme and RM1.5 billion Sukuk Murabahah Programme. Concurrently, the rating agency also affirmed its AIS rating on WCT Holdings’ RM1.0 billion Perpetual Sukuk Musharakah Programme. All ratings carry a stable outlook.
The ratings affirmation considers WCT Holdings’ established track record in the construction sector which continues to provide a sizeable order book, and its improved liquidity position, mainly through receipt of proceeds from an arbitration award. The ratings affirmation is also supported by the increasing likelihood of improvement in the group’s credit metrics from deleveraging activities over the near term. Moderating rating factors include concerns on the recovery prospects for the group’s property development and investment segments that have been impacted by pandemic-induced shutdowns.
We note that WCT Holdings’ strong construction order book of RM5.4 billion at end-June 2021 provides earnings visibility over the next four years. Given its infrastructure contracts are largely from the government or government-linked companies, counterparty credit risk is substantially mitigated. Its major non-government linked contract, the RM2.97 billion superstructure contract for the Pavilion Damansara mixed-development, is related-party project.
We also note the group has improved its liquidity position following the receipt of initial proceeds of RM319 million from the arbitration award following the resolution of the longstanding dispute over the Meydan Racecourse project in Dubai, with the balance of about RM510 million to be paid on a quarterly basis amounting to about RM42 million until July 2024. Furthermore, liquidity will be supported by proceeds from land parcel sales totalling RM110 million by end-2021. We view the proceeds as sufficient to meet all its sukuk repayment obligations through 2022, concurrently addressing its high leverage position which has been a rating concern. The group’s debt-to-equity (DE) ratio of 1.03x at end-June 2021 would ease to below 0.8x by end-2022. Its total borrowings which stood at RM3.4 billion at end-June 2021 (adjusted to include equity credit on its outstanding perpetual sukuk) will decline to RM2.8 billion.
WCT Holdings’ property development activities which have a combined gross development value (GDV) of RM1,204 million and unbilled sales of RM147 million as at end-June 2021 have continued to face challenges. However, with limited ongoing projects, the group’s inventory of completed units declined to RM514 million at end-June 2021 from RM743 million at end-2020. Its retail malls have been affected by the pandemic crisis, leading to a decline in overall occupancy levels and average rental rates. Its hotels have faced the brunt of the impact with occupancy level falling to 15% and 8% for its Premier Hotel in Klang and New World Petaling Jaya Hotel.
For 1H2021, the group’s performance was supported by gains from land parcel sales, without which its earnings would have remained weak with the performance of its malls and hotels hit by movement restrictions. These properties have registered net cash outflow of about RM1.0 million each month and this will continue to weigh on the group’s earnings in the near term.
The stable outlook reflects our expectations that the group’s overall performance would continue to support improvement in its financial metrics and that the deleveraging will be executed as planned in the next 12 months.
Glenn Wong Liu Yu, +603-2717 2961/ firstname.lastname@example.org;
Umar Abdul Aziz, +603-2717 2962/ email@example.com;
Taufiq Kamal, +603-2717 2951/ firstname.lastname@example.org.
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