KUALA LUMPUR: Malaysian Rating Corporation (MARC) has affirmed the ratings of WCT Holdings Bhd’s RM1bil medium-term notes (MTN) programme and RM1.5bil Sukuk Murabahah programme (sukuk) at AA- and AA IS.
The ratings agency had on Wednesday it had assigned a preliminary rating of A with a stable outlook to the proposed perpetual Sukuk Musharakah programme (perpetual sukuk) of up to RM1bil.
“The rating outlook on the perpetual sukuk is consistent with MARC’s revision of the ratings outlook on WCT Holding’s existing senior sukuk and debt programmes to stable from negative.
“The outlook revision factors in the expected improvement in WCT Holdings’ leverage and liquidity positions through the issuance of the proposed perpetual sukuk, proceeds from which will be utilised to early redeem RM800mil MTNs maturing in 2020 while internal cash will be used to early redeem a total of RM300mil sukuk maturing in 2021 and 2022, ” it said.
MARC also said the exercise was expected to reduce group borrowings to RM2.9bil (1H2019: RM3.6bil) and the gross debt-to-equity (DE) ratio to about 0.81 times (1H2019: 1.13 times).
The perpetual sukuk issuance would strengthen WCT Holdings’ capital structure owing to the 50% equity credit accorded to the issuance in line with MARC’s approach to evaluating hybrid securities.
It also said the ratings affirmation is underpinned by the group’s sizeable government-related infrastructure contracts and commercial building construction projects that provide earnings visibility over the medium term.
This is supported by the steady but moderate income stream from the group’s investment properties which include five shopping malls.
“The ratings are moderated by the challenging property market conditions that have led to a continued build-up in inventory levels and by irregular cash flow generation that have weighed on cash flow metrics.
“The ratings and outlook could come under pressure if the planned and further deleveraging exercises do not result in the satisfactory improvement in its debt metric the gross DE ratio to about 0.8 times over the next 12 months, ” it said.
As at end-March 2019, WCT Holdings’ construction order book stood at RM6.1bil, of which the LRT3 project (outstanding contract value: RM1.37bil), Pan Borneo (Sarawak) highway works (RM654mil) and Pavilion Damansara Heights phase one superstructure works (RM1.72bil) represent sizeable contracts.
“Going forward, contract replenishment could be challenging given the potential slowdown in government infrastructure project flow, stemming from the need to strengthen government finances, ” it said.