BY SHARIDAN M. ALI

PETALING JAYA: Builder-cum-property developer WCT Holdings Bhd could reward its shareholders and pare down borrowings with the nearly RM1.2bil claims it was awarded by a Dubai tribunal over a long-standing contract dispute with Meydan Group LLC.

“Although its management has yet to decide what to do with the claims award, we believe WCT could utilise the money to pare down some borrowings, declare a special dividend and fund landbanking capital expenditure (capex),” said Kenanga Research in a report.

“If we look at its balance sheet, (it had) a high net gearing of 0.7 times as at the first quarter of this year,” it noted.

The research firm believes that WCT might look to reward shareholders, considering that the stock has lost some sheen over the years.

“We reckon that a 10% payout assumption of the net amount of RM870mil as special dividends is reasonable, while the remaining 90% might be kept for capex and paring down borrowings.”

If so, WCT could declare an extra seven-sen special dividend per share, which would translate into an additional dividend yield of 5.6% beyond its current dividend payout, the firm said.

While Meydan will be paying RM1.2bil to WCT as a result of the arbitration award, there is RM330mil in receivables related to this project in WCT’s books.

Kenanga said this implies a net cash amount of RM870mil or 71 sen per share.

“In terms of timing, we understand management is pursuing the claim from Meydan as soon as possible,” said Kenanga.

Furthermore, it said the group’s net asset value could increase to RM3.2bil or RM2.62 per share from RM2.3bil or RM2.11 per share now after it received the claims.

Nomura Research, in what it describes as a potentially game-changing development, said this should help halt the stock’s derating over the last 12 months.

Investors welcomed the outcome positively, with WCT shares closing 12% up to touch RM1.40 with 105.19 million shares being done.

The stock has lost close to 40% of its value over the last one year.

Nomura said that in the best-case scenario of a full recovery, it will increase WCT’s cash balance by RM1.2bil that would, in turn, reduce gearing from 71% to 21% based on its first-quarter numbers.

“There is also a possibility (in our view) that WCT will pay out some part of the cash as a special dividend, which will be positive for the stock,” the firm said.

It added that the total claim of RM1.2bil was equivalent to 94 sen per share on the current outstanding shares base, and 62 sen per share on a fully diluted share base, assuming all warrants are exercised.

To recap, the arbitration request was filed by the company in 2009 after the Meydan Group in Dubai abruptly cancelled the construction contract for the Nad Al-Sheba Racecourse Project in the midst of the global financial crisis.

After the cancellation, Meydan had called on the performance bond and advance payment bond provided by the joint venture. A performance bond is a bond that is issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract.

The landmark judgement brought closure to the legal wrangle, which many had expected to drag on for the next few years.