MARC Ratings has downgraded its ratings on WCT Holdings Berhad’s RM1.0 billion Medium-Term Notes (MTN) Programme to A+ from AA-, and RM1.5 billion Sukuk Murabahah Programme to A+IS from AA-IS. Concurrently, the rating on WCT Holdings’ RM1.0 billion Perpetual Sukuk Musharakah Programme has been lowered to A-IS from AIS. The ratings outlook has been revised to stable from negative.
The downward rating action primarily reflects the negative impact on WCT Holdings’ cash flow generating ability from a declining construction order book and thin construction margins which have weighed on its credit metrics. WCT Holdings’ ability to strengthen its balance sheet has also been hindered by the delayed asset monetisation, while borrowings rose to fund working capital requirements amid longer receivable periods. Borrowings rose 10.6% y-o-y to RM3.1 billion in 2023. As a result, group leverage has deviated from the rating agency’s earlier expectations of around 0.8x to 1.17x as at end-2023 (adjusted to include equity credit to the perpetual sukuk).
In 2023, WCT Holdings recorded a 17.9% y-o-y decline in revenue to RM1.7 billion and a pre-tax loss of RM177.8 million (pre-tax profit of RM139.3 million in 2022), due to project prolongation, and higher raw material and labour costs. Construction order book stood at RM2.7 billion, compared to an average of RM4.9 billion between 2018 and 2022. While the rollout of large domestic infrastructure projects has been slower than expected, WCT Holdings has a tender order book of about RM16.4 billion including packages under rail infrastructure and building projects. Given about 45.4% of its outstanding order book is expected to be completed over the next two years, timely replenishment of the order book is a rating concern.
With respect to property development, WCT Holdings has three ongoing projects with a total gross development value of RM1.7 billion as at end-2023. It launched a high-end development in Mont Kiara during 3Q2023 which received a take-up rate of 68% as at end-December 2023. Total unbilled sales stood at a moderate RM640 million. Performance of its malls continued its recovery trajectory towards pre-pandemic levels, with the occupancy rate for its retail malls exceeding 80%, while that of its hotels also improved. As part of its asset monetisation plan, WCT Holdings is expected to set up a Real Estate Investment Trust to acquire its retail malls.
The stable outlook is premised on MARC Ratings’ expectation of a turnaround in performance, supported by a higher construction order book and improved construction margin. The rating agency also expects WCT Holdings to improve its overall credit profile from deleveraging through asset monetisation.
The outstanding amount under the Sukuk Murabahah stood at RM760 million and the Perpetual Sukuk at RM821.5 million as of end-February 2024. The call date for the first tranche of the RM282 million perpetual is at end-September 2024.