RAM Ratings assigns and reaffirms top ratings for Genting Group

Published on 08 June 2012

RAM Ratings has reaffirmed the respective long- and short-term corporate credit ratings of Genting Berhad (“Genting” or “the Group”), at AAA and P1. Concurrently, RAM Ratings has assigned a final enhanced long-term rating of AAA(s) to Genting Capital Berhad’s (“Genting Capital”) RM2.0 billion Medium-Term Notes Programme (2012/2032). Meanwhile, the enhanced AAA(s) rating of GB Services Berhad’s (“GB Services”) RM1.6 billion Medium-Term Notes Programme (2009/2024) has also been reaffirmed. The long-term ratings have a stable outlook. Genting Capital’s and GB Services’ debt facilities are backed by full, unconditional and irrevocable corporate guarantees from Genting. As such, the enhanced ratings are based on Genting’s credit profile.

Genting is the sole licensed casino operator in Malaysia, and one of only 2 in Singapore. It is also currently the largest casino operator in the United Kingdom (“UK”). Besides its main leisure and hospitality (“L&H”) business, the Group is involved in power generation, oil-palm plantations and property development as well as oil and gas. Genting Capital and GB Services, incorporated for financing purposes, are wholly owned subsidiaries of Genting.

Genting’s credit profile is supported by strong and steady cashflow from its L&H business, particularly Resorts World Sentosa (“RWS”) in Singapore and Resorts World Genting (“RWG”) in Malaysia. RWS benefits from a duopoly in the Singaporean gaming sector while RWG enjoys a monopoly in Malaysia. RWS, opened in 2010, has added to the geographical diversity of the Group’s L&H operations. Notably, Genting possesses a strong cashflow-generating ability, robust balance sheet and ample liquidity. Nonetheless, these positives are moderated by the Group’s exposure to regulatory risk and the susceptibility of its L&H earnings to events that may affect the tourism industry. Unlike RWG, whose patrons mainly consist of local day-trippers, RWS and the Group’s London casinos depend more on tourists.

Underpinned by a full year’s contributions from RWS and RWG’s stronger earnings, Genting’s revenue and operating profit before depreciation, interest and tax advanced a respective 28.7% and 15.5% year-on-year (“y-o-y”) in fiscal 2011. The Group’s power, plantation and property businesses also recorded y-o-y improvements. As at end-December 2011, Genting’s funds from operations (“FFO”) debt cover had strengthened to 0.51 times, from 0.48 times a year earlier. Meanwhile, the weaker performance of its gaming operations in 1Q FYE December 2012, and to a smaller extent, its power and plantation divisions, had not materially affected its financial metrics. The Group’s annualised FFO debt coverage ratio stayed strong at 0.50 times. Moreover, its balance sheet strengthened, with a wider net cash position as at end-March 2012. Notwithstanding Genting’s capital investments over the near-term, mainly for the last phase of RWS as well as general maintenance and upgrading of RWG, its balance sheet and cashflow-protection measures are envisaged to remain strong, with a gearing ratio of less than 0.4 times and an FFO debt cover exceeding 0.4 times over the medium term. These have not factored potentially sizeable investments by the Group should it embark on new business ventures.

In the meantime, Genting has been actively seeking opportunities to expand its global presence, particularly in L&H. While it recently encountered setbacks in the development of an integrated resort adjacent to its video lottery terminal facility in New York, the Group is envisaged to participate in the bidding of future developments in the city, if and when the opportunity arises. We also do not discount expansion of gaming operations in Miami should the state’s gaming industry be liberalised in the future. Meanwhile, the Group is reportedly also eyeing new markets such as Japan, South Korea, Vietnam and Sri Lanka. These new ventures could entail sizeable capital expenditure and may require longer gestation periods than Genting’s earlier projects. “We opine that competitive pressures and the challenging operating landscape in new markets could also mean lower profitability, compared with the margins currently enjoyed in RWG and RWS. Nonetheless, comfort can be derived from the Group’s strong operational performance in its Malaysian and Singaporean operations, as well as its success in turning around its operations in the UK," observes Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my