RAM Ratings reaffirms Genting Group’s ratings

Published on 28 August 2013

RAM Ratings has taken the following rating actions in respect of Genting Berhad’s (“Genting” or “the Group”) corporate credit ratings:

Rating Types	Rating Action	Ratings
National Ratings	Reaffirmed	AAA/Stable/P1
ASEAN Ratings	Reaffirmed	seaAAA/Stable/seaP1
Global Ratings	Reaffirmed	gA2/Stable/gP1

Concurrently, the AAA(s)/stable ratings of the RM2.0 billion Medium-Term Notes Programme (2012/2032) and RM1.60 billion Medium-Term Notes Programme (2009/2024) issued by the Group’s wholly-owned subsidiaries (Genting Capital Berhad (“Genting Capital”) and GB Services Berhad (“GB Services”), respectively) have been reaffirmed. The debt programmes are backed by full, unconditional and irrevocable corporate guarantees from Genting. As such, the enhanced ratings are based on the credit profile of the Group.

Genting is the sole licensed casino operator in Malaysia, and one of only 2 in Singapore. It is also one of the largest players in the United Kingdom’s (“UK”) gaming industry and the operator of a casino in the Bahamas and a video lottery terminal facility in New York in the United States. Besides its main business of leisure and hospitality (“L&H”), the Group has interests in power generation, oil-palm plantations, property development and oil and gas.

Genting’s credit profile is supported by its strong business position in the Malaysian, Singaporean and UK gaming markets. Underpinned by Resorts World Genting’s (“RWG”) monopolistic position in Malaysia and Resorts World Sentosa’s (“RWS”) part in the Singaporean duopoly gaming industry, the Group’s overall operating profit before depreciation, interest and tax margins of around 30%-40% are among the highest of gaming groups. With RWS and RWG located in different countries, Genting’s exposure to concentration risk is reduced. Consistent with most global gaming majors which have a significant presence in at least 2 markets, the establishment of casino operations in more than one country helps to alleviate the impact of unforeseen downturns in the macro-economic environment or the risk of adverse regulatory changes in any one country.

Notably, Genting possesses a strong cashflow-generating ability, robust balance sheet and ample liquidity. “The Group’s financial metrics are also superior to that of most global gaming operators,” observes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. Genting’s net cash position strengthened year-on-year (“y-o-y”), with its cash and cash equivalents standing at RM21.70 billion as at end-FY Dec 2012. Nevertheless, amid a more subdued showing by RWS and the Group’s plantation business, as well as an issuance of SGD2.30 billion of perpetual subordinated capital securities, Genting’s adjusted funds from operations (“FFO”) debt cover was lower y-o-y at 0.32 times in FY Dec 2012 (FY Dec 2011: 0.50 times). “Taking into account its planned capital expenditure (“capex”) and potential investments relating to Resorts World Las Vegas, Genting is expected to maintain its FFO debt cover ratio at approximately 0.25-0.3 times, with its net gearing ratio at around 0.1 times,” notes Lim. 

RAM remains cautious over the possible impact of further aggressive debt-funded expansions on Genting’s financial metrics. The Group is reportedly eyeing new markets such as Japan and South Korea. These possible ventures could entail sizeable capex and may require a longer gestation period than its previous projects. The Group’s current strong financial metrics could also change abruptly given the lumpiness of such investment. Competitive pressures and the challenging operating landscape of the new markets may also mean lower profitability compared with margins currently enjoyed by RWG and RWS. Nonetheless, we derive comfort from the Group’s strong operational performance in Malaysia and Singapore and its success in turning its operations in the UK around. The ratings are also moderated by Genting’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 and premium players.

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