WCT's arbitration could drag on for years : analysts

PETALING JAYA: AmBank Research is unperturbed by WCT Holdings Bhd's legal suit in Doha as it believes the reality is that the arbitration could drag on for years, and when a decision is finally handed down, it remains to be seen if the award is enforceable, or if the counterparty will honour the award.
AmBank said a case in point is WCT's arbitration proceeding against client Meydan Group LLC in relation to the cancellation of the Nad Al Sheba Racecourse project in Dubai, UAE. First commenced in 2009, WCT only received an award of AED1.15 billion (RM1.2 billion) six years later in 2015.
"However, at present, two years after the award, Meydan Group LLC has yet to pay up. Therefore, we are unperturbed by the latest development," the research house said in a report yesterday.
WCT has received a request for arbitration from the Court of Arbitration of the International Chamber of Commerce, filed by its mechanical, electrical and plumbing subcontractors for the Ministry of Interior headquarters project in Doha, Qatar for 181.57 million riyals (RM214.1mil).
"We are unable to determine if WCT has a strong case (in the absence of the facts of the case and legal expertise). However, if WCT is to lose the latest arbitration, the amount claimed RM214.1 million, will erase the entire and 70% of our FY17 and FY18 forecast earnings for WCT respectively.
The total loss per share is 12 sen on a fully diluted basis," AmBank said.
This is the second major arbitration claim WCT has been served with this year. To recap, In Feb 2017, a 50:50 WCT – Arabtec Construction LLC JV received a request for arbitration from the Dubai International Arbitration Centre, filed by its steel work subcontractor for the Nad Al Sheba Racecourse project in Dubai, UAE. It is claiming AED107.7 million (RM130.6 million) for works done, plus costs.
It maintained its forecasts on WCT with a fair value of RM1.88 and hold call.
Meanwhile, PublicInvest Research said the new development comes as a negative surprise and proves that these surprise contingent liabilities, especially from WCT's overseas projects, could potentially wipe out its yearly earnings in the event that it loses this particular arbitration case.
It said the impact to WCT's net assets is estimated at 8% only and would be mitigated by its impending arbitration award of totaling AED1.15 billion (RM1.4 billion).
"As expected, WCT will defend and oppose the claims and it would probably take a long time to resolve based on precedent cases. All told, our target price remains unchanged at RM2.00, and we maintain our neutral call," PublicInvest said.
HLIB Research also said the suit is a negative surprise and gathered that RM538 million (68%) of WCT's RM791 million receivables as at 1QFY17 is from the Middle East, majority of which is related to the Ministry of Interior headquarters project.
"Should the abovementioned risk factor pan out (the worst case scenario), this would reduce our FY17 earnings forecast of RM121 million to a loss of RM93 million. However, we would treat this arbitration claim as an exceptional item and hence, leave our core earnings forecast unchanged," said HLIB.
It added that arbitration proceedings are usually a long drawn affair, maintaining a hold call on WCT with a target price of RM2.15.
WCT closed 6.7% lower at RM1.95 yesterday, with 3.04 million shares traded.