PETALING JAYA (June 28): Dubai-based Meydan LLC has filed a civil suit against WCT Bhd and its joint venture partner Arabtec Construction LLC in their long-standing dispute over the construction of Nad Al-Sheba racecourse.
WCT announced to Bursa Malaysia on Wednesday that Meydan has filed a civil claim of 3.5 billion UAE dirham (RM3 billion) against the WCT-Arabtec JV. The construction and property development company said Meydan has taken the position that the arbitration tribunal brought forward by the joint venture against it has expired due to “effluxion of time”.
However, the Dubai International Arbitration Court (DIAC), where the case is being heard, has decided that the claim has not expired due to effluxion of time. It was reported that delays on Meydan’s part have caused the arbitration to miss the end-2011 deadline for conclusion.
“Notwithstanding the arbitration tribunal’s decision, the company [WCT] received information on June 26, 2012 that Meydan had on June 14, 2012 brought its counterclaims ... under Commercial Action, claiming jointly against the company and Arabtec, a sum of 3.5 billion dirham,” the announcement read.
In January 2009, the WCT-Arabtec JV announced that its contract to construct the racecourse in Dubai was terminated by Meydan on the grounds of a delay in the completion of the JV company’s part of the job.
At that time, WCT-Arabtec had completed about 65% of the job, which included the construction of the main building, external and infrastructure works, and had appointed nominated subcontractors to undertake some portions of the job on behalf of the JV company.
In its arbitration claim, WCT-Arabtec sought compensation of 2.8 billion dirham, consisting of completed but unpaid work, nominated subcontractors’ dues, interest costs and loss of reputation. In the Bursa announcement yesterday, WCT said the civil suit was “frivolous and without merit”. It added that the contract signed between WCT-Arabtec JV and Meydan provided that all disputes between the parties should be resolved by way of arbitration.
“The company will continue to pursue its claim pursuant to the ongoing arbitration proceedings and will take all necessary steps to defend and/or oppose the civil suit filed by Meydan,” the group stated.
WCT said in a statement that it had been advised by the solicitors appointed to represent the JV in the arbitration that disclosure of specifics and details in relation to the arbitration should be limited and only as required by WCT’s disclosure obligations under the relevant listing and/or securities regulations.
Alliance Research analyst Jeremy Goh said the claims are exaggerated and highly unlikely to materialise. “The worst case scenario is that Meydan wins the civil suit.
WCT’s share of the counterclaims by Meydan would amount to RM1.52 billion, which is more than enough to offset our FY12 to FY14 earnings forecast of RM179 million to RM222 million. It would also wipe out WCT’s entire shareholders’ funds which stood at RM1.53 billion as at 1QFY12,” said Goh.
Joshua Ng, an analyst with RHB Research Institute, said the Dubai racecourse contract is now very much off WCT’s books, except for the RM256 million payables to nominated subcontractors, which the group does not have to oblige if it hasn’t received payment from Meydan. “We suspect that this could be a tactical move by Meydan in an attempt to compel WCT-Arabtec JV into compromising on certain settlement terms.
We understand that WCT-Arabtec JV’s stance is that the arbitration at DIAC is still good and ongoing,” Ng said in a research note. WCT dropped seven sen or 2.86% to RM2.38 yesterday following the announcement. YTD, its share price has increased by 4.85% from RM2.27 on Jan 3.
This story appeared in The Edge Financial Daily on June 28, 2012.