MARC Ratings has affirmed its AA-, AA-IS and AIS ratings on WCT Holdings Berhad’s RM1.0 billion Medium-Term Notes (MTN) Programme, RM1.5 billion Sukuk Murabahah Programme and RM1.0 billion Perpetual Sukuk Musharakah Programme. Concurrently, the rating agency has revised the outlook on all the ratings to negative from stable.
The outlook revision is premised on the persistently high leverage position that WCT Holdings has not been able to address in a meaningful way as its planned asset disposals, proceeds from which would be used to pare down borrowings, have continued to be delayed. The rating action has also factored in the group’s weakening liquidity position as cash reserves have been used to support the group’s operations in recent periods.
Meanwhile, the ratings affirmation considers the group’s construction order book size of RM3.3 billion as at end-March 2023 that provides earnings visibility in the near term, and its steady income from investment properties. This notwithstanding, the steadily declining construction order book size since 2018 remains a rating concern.
As at end-March 2023, group borrowings stood at RM2.8 billion, translating to a gross debt-to-equity (DE) ratio of 0.97x (adjusted to include equity credit to the perpetual sukuk) and a net DE ratio of 0.91x. WCT Holdings was expected to pare down about RM200 million in borrowings by end-2022. However, the deleveraging process had been delayed by slower-than-expected collection of construction receivables. The group has indicated it will undertake asset sales and other measures in the near term, but execution risk remains a concern.
MARC Ratings notes that while WCT Holdings has a tender book of about RM9.0 billion comprising large contracts for rail infrastructure works and flood mitigation projects, among others, securing new contracts has been slow in recent years with no new contracts awarded in 2022. Assuming its current order book size, which is about 55% of the RM6.0 billion it had in 2018, is not replenished on a timely basis, the group’s financial performance would be impacted. Additionally, its low construction margin provides thin buffer for raw material and labour costs increases.
MARC Ratings said it will review WCT Holdings’ ratings within the next six months. The ratings could be lowered if the group does not see any meaningful improvement in financial performance and debt metrics.
