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Thursday, March 11, 2010

BAE arbitration claim may hit Gamuda, WCT earnings

PETALING JAYA: The arbitration claim by Bahrain Asphalt Establishment BSC (BAE) amounting to 109.27 milion Qatari riyal (RM101.06mil) against the Gamuda Bhd-WCT Bhd joint venture (JV) in Qatar may have an impact on both the Malaysian companies’ earnings, according to analysts.

OSK Research in its report yesterday said the claim by BAE was “not good news.”

It said the arbitration could be long drawn, based on WCT’s ongoing arbitration with Dubai’s Meydan LLC, where the latter had cancelled a deal to build a race cource there. The claim has been pending since early last year.

“Assuming the (BAE) claims are made in the current financial year, our FY10 earnings (for WCT) forecast would be reduced by 29%,” said OSK.

The research house forecasts WCT to record a net profit of RM171mil on revenue of RM2.6bil for the financial year ending Dec 31 (FY10).

It forecasts Gamuda’s earnings would be reduced by 17.6% in the financial year ending July 31 (FY10). The research house forecasts a net profit of RM292.6mil on revenue of RM2.96bil for the company.

To recap, Gamuda and WCT said in separate statements on Tuesday that the claim was over disputes in their sub-contract for the granular sub-base and flexible pavement works in the construction of the 43km new Dukhan Highway from Shahaniya to Zekreet in Qatar.

Gamuda’s and WCT’s interests in the JV are in the proportions of 51% and 49% respectively.

BAE is claiming from the Gamuda-WCT JV the total quantified sum of RM101.06mil comprising 94.87 milion riyal for alleged prolongation, escalation, collateral and associated costs for 728 days’ delay in completion of the sub-contract works; 13.43 million riyal for alleged overcharge/wrongful deductions; and 964,969 riyal for alleged wrongful deduction for supply of bitumen.

It is also claiming further unquantified sums for legal costs, arbitration costs, and interest.

Pursuant to the announcement, Gamuda’s shares fell two sen to RM2.79, while WCT lost nine sen to RM2.72 the same day.

Gamuda’s shares were unchanged while WCT fell four sen to RM2.68 yesterday.

“The fact that WCT’s shares have fallen is indicative that shareholders fear that there may be an impact,” said an analyst from a local bank-backed brokerage.

In their respective statements on Tuesday, Gamuda and WCT said they were of the opinion that the request for arbitration was pre-mature as the preconditions stipulated in the arbitration clause had not been met.

By The Star

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