Meydan Statement On Why It Cancelled WCT's Contract

Posted on Dow Jones news.

• Dubai Meydan: Arabtec, WCT Contract Canceled On Delays
  
  DUBAI (Zawya Dow Jones)--Dubai-based Meydan L.L.C. said Tuesday it canceled a $1.3 billion contract with Malaysia's WCT Bhd. (9679.KU) and local firm Arabtec Construction L.L.C. because the firms failed to stick to the time schedule for the construction of the Nad Al-Sheba Racecourse Project in the emirate.
  
  "The phases of the completion of the main stand and the infrastructure works for the horse racing course at Nad Al Sheba which had been awarded to Arabtec and WCT of Malaysia has shown considerable delay in implementation," a Meydan official said in an emailed statement to Zawya Dow Jones.
  
  Meydan said it took the decision to "reassert its resolve to complete the project on time in order to honor its international and local commitments."
  
  The developer said other contractors will continue working on the mega-project "so as to inaugurate the project on the targeted schedule."
  
  The WCT-Arabtec joint-venture was awarded the build-only contract by Meydan to construct and complete the main building works, external works and infrastructure works of the racecourse on Sept. 18, 2007. The contractual completion was scheduled for Oct. 7, 2009.
  
  To date, the joint venture has completed about 55% of the physical portion of the works, with the remaining 40% to be undertaken by nominated subcontractors and the 5% directly by the joint venture.
  
  WCT shares fell 29.5% to MYR1.29 Tuesday in active trade in reaction to the news before being suspended at the company's request. Arabtec shares closed down 9.7% at AED2.34 on the Dubai Financial Market.
  
  In a filing to the Kuala Lumpur stock exchange, WCT said it stands to potentially lose 1.35 billion U.A.E. dirhams ($367.5 million) in its order book from the cancellation of the project and that "the terms and conditions of the cancellation is currently being pursued."
  
  "The Board views the cancellation as a breach of contract (on the part of Meydan)," WCT said, adding the company, through the joint-venture, is currently considering all its options and will take the necessary steps to protect the group's interests.
  
  Arabtec officials weren't immediately available to comment when called by Zawya Dow Jones.
  
  The 67 million square feet Meydan development is scheduled to open in 2010 in time for the 15th Dubai World Cup, the richest horse race in the world.
  

More On WCT's Racecourse Project Termination

Posted early this morning: Dubai's Meydan Terminates Racecourse Construstion Deal With WCT!

And it did not shocked me when WCT slumps 29.5% after Dubai contract cancelled.

Let's trace back in time. The following article was posted on the Edge back in 2007.

• 19-09-2007: WCT’s RM4.6b Dubai projectto boost earnings
  by Lee Yu Tang
  
  KUALA LUMPUR: WCT Engineering Bhd and its Dubai-based partner have clinched a RM4.6 billion contract to build the proposed Nad Al Sheba racecourse in Dubai, the United Arab Emirates (UAE).
  
  The joint venture Arabtec Construction LLC-WCT Engineering JV was awarded the build-only contract for the main building, external works and infrastructure for the racecourse. It was designed by Malaysian architect Teo Ah Khing.
  
  “The construction period is approximately 25 months with immediate commencement,” it said yesterday.
  
  Arabtec Construction LLC-WCT Engineering JV is an unincorporated joint venture (JV) between WCT and Arabtec Construction LLC -- a unit of Arabtec Holding PJSC. The rights and liabilities of WCT and Arabtec in the JV are on a 50:50 ratio.
  
  The one-km long grandstand building would have a capacity of 55,000 to 60,000, a five-star-plus luxury hotel, more than 10 restaurants, museum and gallery, covered car park for more than 10,000.
  
  HwangDBS Vickers Research said WCT’s 50% share of the project would boost its order book by 54% to RM6.58 billion. It raised the FY08 – FY09 net profit forecast by 12% and 9% respectively to RM161.1 million and RM190.7 million.
  “Our earnings projection is conservative and factors in construction margin of 6%. As such, there is room for further increases in our forecast on higher than expected construction margins. Every 1% increase in margins increases our FY08 net profit by 4%,” said.
  
  He said in the middle term, there could be the possibility of additional work on the group’s existing profile of mega jobs in the Middle East such as the Dubai World Central International Airport, New Doha International Airport.
  
  WCT and Arabtec, had in March, constructed the world’s tallest building Burj Dubai. It had also secured RM486 million worth of works for the Dubai World Central International Airport drainage and sewerage system.
  
  Aseambankers Equity Research said WCT’s share of the racecourse project would raise WCT’s outstanding construction order book to around RM7 billion from RM4.5 billion.
  
  It said the project reaffirmed WCT’s position in Middle-Eastern construction and provided strong earnings growth in 2008 and earnings visibility into 2009. “Net margins for this project could potentially be 8% to 10%,” it said.
  
  WCT’s share price, closed 65 sen higher at RM7.25 yesterday, highest ever since July 2005. There were 2.11 million shares done.

Source: http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_1bea0198-cb73c03a-35eed000-1971f5c0

Earnings forecasts had been raised because of this projects.

Earnings visibility had been established for this company.

And now this project is terminated.

I do have a copy of a RHB report on WCT and the impacts on its earnings from this project back in 2007. Here is a screen shot.

Dubai's Meydan Terminates Racecourse Construstion Deal With WCT!

Posted on Business Times:

• Dubai axes racecourse deal with WCT Engr
  
  Published: 2009/01/06
  
  DUBAI: Dubai’s Meydan LLC said yesterday it has cancelled a racecourse construction deal with Malaysian construction firm WCT Engineering Bhd and local firm Arabtec.
  
  A Meydan statement did not give a value for the deal, but WCT said in 2007 that its 50-50 joint venture with Arabtec had won a US$1.3 billion contract to build the racecourse in Dubai.
  
  The contract was cancelled “because of non-adherence to the agreed time schedule for construction,” Meydan said in the statement.
  
  Arabtec officials could not be reached for comment.
  
  Meydan is taking steps to commission other companies to complete the racecourse by 2010, when it is to be opened with the Dubai World Cup horse race, the statement said.
  
  The racecourse is designed to include a 1 km (0.6 mile) grandstand and capacity for up to 60,000 spectators.
  
  Because of the global financial crisis and falling construction costs, Gulf Arab countries have cut back on some large projects or tried to renegotiate costs with contractors. - Reuters

Source: here

Bad news for WCT Engineering!

Would we see more termination of contracts from Gulf Arab countries?

Judging from the drastic decline in the crude and the impact on their stock markets (see the following blog posting last year: Crisis Hit Arab Nations, Sending Stocks Into Tailspin ) and the current global financial crisis, I would not discount this from happening again!