FW: MARC AFFIRMS WCT HOLDINGS' DEBT AND SUKUK RATINGS; REVISES OUTLOOK TO STABLE FROM NEGATIVE

 

 

 

P R E S S  A N N O U N C E M E N T

 

FOR IMMEDIATE RELEASE

 

MARC AFFIRMS WCT HOLDINGS’ DEBT AND SUKUK RATINGS; REVISES OUTLOOK TO STABLE FROM NEGATIVE

 

MARC has affirmed its ratings on WCT Holdings Berhad’s (WCT Holdings) RM1.0 billion Medium-Term Notes (MTN) Programme and RM1.5 billion Sukuk Murabahah Programme at AA- and AA-_IS respectively. Concurrently, MARC has revised the ratings outlook to stable from negative. The current outstanding under the MTN Programme and Sukuk Murabahah Programme are RM1.0 billion and RM950.0 million respectively.

 

The outlook revision incorporates WCT Holdings’ improving liquidity and leverage positions following a share placement exercise and warrant conversion. Cash injections from the equity issuances amounted to RM260.8 million in 1H2017, which could potentially increase by another RM204.4 million on the expected completion of new placement of shares in 2018. Coupled with proceeds from asset monetisation in the near term, total debt is expected to reduce by about RM550.1 million, leading to a pro forma net debt-to-equity (DE) of about 0.65 times. WCT Holdings’ consolidated debt stood at RM3.2 billion with a net DE ratio of 0.85 times as end-1H2017. MARC expects net DE to further improve with cash inflows from reductions in the group’s inventory of completed properties and sale of land estimated to net about RM300.0 million.

 

The ratings affirmation is supported by the improvement in the operating performance of WCT Holdings’ construction segment, complemented by the modest but stable revenue stream from its property investment segment. These factors notwithstanding, the weak performance of its property development segment remains a key moderating factor.

 

WCT Holdings’ operating performance is expected to improve over the near term on better margins in the construction segment which contributed 72.4% and 54.9% to group revenue and operating profit respectively in 1H2017. Its order book is diversified with domestic external infrastructure projects accounting for 82.8% of the outstanding balance of RM6.1 billion (end-2016: RM5.3 billion). The property investment segment, comprising BBT Mall and Premiere Hotel, contributed 3.6% and 17.5% of group revenue and operating profit respectively. Contributions from this segment will decline upon the successful completion of the Real Estate Investment Trust (REIT) listing.

 

In the property development segment, WCT Holdings targets sales of RM500.0 million by mid-2018 primarily from its inventory of completed properties at gross development value (GDV) estimates totalling RM643.4 million. Its near-term strategy to attract demand with more attractive repricing packages is expected to yield positive cash flows but may compress profit margins. Ongoing property development projects have a combined GDV of RM866.0 million with a modest take-up rate of 52.1% as at end-June 2017. Total sales for 8M2017 was RM187.0 million while total sales pending completion was RM83.6 million. Contracted sales of RM322.0 million would provide earnings visibility for the next three years. While plans to withhold new launches amid the soft property market conditions are credit positive, MARC opines that any land acquisitions would exert pressure on the ratings unless the group’s financial metrics have been restored to the anticipated levels.

 

For unaudited 1H2017, operating profit improved by 14.4% y-o-y to RM95.6 million although revenue declined by 19.6% y-o-y to RM856.7 million. The higher profit is mainly due to higher margin infrastructure projects in the construction segment. The group reported negative cash flow from operations (CFO) and free cash flow (FCF) of RM194.3 million and RM268.5 million respectively in 1H2017, which were largely funded by proceeds of RM260.8 million from equity issuances. The negative cash flows are expected to taper off towards end-2017 with the completion of Paradigm Mall Johor Bahru, the significantly lower property development expenditure which was predominant from 2013 to 2016, and the likelihood of no major capex being incurred in the near term.

 

WCT Holdings has sufficient liquidity to meet current debt maturities of RM462.1 million (RM262.1 million has been refinanced). MARC considers the group’s financial flexibility to be good in view of its ability to tap the equity market, unutilised bank credit limit of RM556.9 million, undrawn limit on the rated Sukuk of RM550.0 million and potential net proceeds from asset disposals. 

 

The stable outlook incorporates MARC’s expectations that WCT Holdings would exercise prudent capital spending such that the group’s credit metrics would improve and are commensurate with the affirmed ratings. Rating pressure could arise if the group’s leverage and liquidity positions start to deteriorate or if negative cash flows persist. The ratings would also be lowered if subsidiary-level borrowings increase or the holding company’s debt obligations are subordinated to those of the operating subsidiaries.

 

 

Contacts: Wan Abdul Muiz Wan Abdul Ghafar, +603 2717 2939 / muiz@marc.com.my; Yap Lai Ken, +603 2717 2947 / laiken@marc.com.my.

October 27, 2017

 

 

[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]

----   DISCLAIMER    ----

This communication is provided by Malaysian Rating Corporation Berhad (“MARC”) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.

 

© 2017 Malaysian Rating Corporation Berhad

 

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