KUALA LUMPUR (July 14): The RM828 million settlement announced today which WCT Holdings Bhd has secured for its cancelled Dubai racecourse development job after 12 years of dispute, should remove the overhang on its share price relating to outstanding contract arbitrations, said CGS-CIMB Research.
However, the research house in its note today did not revise its valuations and estimates for the developer, pending more clarity on the utilisation of proceeds.
Based on WCT’s 1.42 billion outstanding shares, the settlement represents about 58.33 sen per share. The settlement sum is higher than the group’s market capitalisation of RM772.48 million, based on its closing share price of 55 sen on Wednesday.
CGS-CIMB said WCT expects to use the initial payment and first tranche of settlement, totalling about RM360 million by October, to pay off its sukuk of RM200 million. The remainder will be used for working capital.
It noted that WCT carries some RM320 million in receivables relating to the Nad Al Sheba project.
“The group has not made any provisions, given the ongoing arbitration proceedings and the possibility of a favourable outcome,” the research house said.
“We estimate that the initial payment plus the first instalment would reduce net gearing of 0.66x as at end-March 2021 to 0.57x. Assuming that the entire settlement sum is used to repay borrowings, we estimate the net gearing would fall to as much as 0.47x by the end of the next three years,” it said.
“The overall estimated impact of lower borrowings would raise our revalued net asset value (RNAV) and target price (TP) by as much as 10% (+8 sen),” the research house added, although it has not revised upward any projections for now.
The Nad Al Sheba Racecourse project dispute has been WCT’s largest arbitration in terms of value relating to legacy overseas contracts, said the research house.
WCT’s wholly-owned WCT Bhd (WCTB) partnered Arabtec Construction LLC for the contract, which was terminated in 2009 by Meydan LLC on grounds of a delay in completion of the joint venture company’s part of the job.
It was reported at the time that the WCTB-Arabtec JV had completed about 65% of the job, which included the construction of the main building, external and infrastructure work, and had appointed nominated subcontractors to undertake some portions of the job.
Meydan settled with WCT for AED726.57 million (about RM828.25 million), which represents 65% of the principal sum of AED1.15 billion awarded to WCTB earlier by Dubai’s Arbitral Tribunal under the final award in relation to the dispute.
This is the second good news for WCT this month. On July 8, the company announced that its joint venture had bagged a RM899.81 million contract for the expansion of Sabah's Sapangar Bay Container Port, which helped it beat analysts’ expectations of its contract replenishment target this year.
Shares of WCT settled up 3.5 sen or 6.8% to 55 sen today, valuing the group at RM772.48 million.