Published on 30 July 2015
Genting Malaysia’s credit profile is supported by its position as the only casino operator in Malaysia via Resorts World Genting (RWG). RWG contributes a respective 70% and 80-90% of Genting Malaysia’s yearly revenue and operating profit before depreciation, interest and tax, and is key to the Group’s strong and stable cashflow. RWG’s strong domestic operations and predominantly mass-market customers minimise earnings volatility. Further, the Group has an established operating track record overseas. It is one of the leading casino operators in the UK and its slot operation in New York is the highest-grossing in the US Northeast.
Backed by its gaming business, Genting Malaysia generates strong operating cashflow. The Group has remained in a net-cash position for the last 5 years, supported by operating cashflow that has generally stayed above RM1.5 billion during the same period. For FY Dec 2014, its funds from operations (FFO) debt cover remained solid at 0.92 times (FY Dec 2013: 1.04 times). However, its free operating cashflow (FOCF) dipped into deficit, given major capex incurred mostly for the Genting Integrated Tourism Plan. “Moving forward, we anticipate Genting Malaysia’s financial profile to remain strong, despite expected significant increases in debt load. Net gearing is expected to rise to about 0.15 times next year while FFO debt coverage may weaken to below 0.50 times this year and improve thereafter. However, significant capex is likely to keep the Group’s FOCF in deficit for this year and next,” says Kevin Lim, RAM’s Head of Consumer and Industrial Ratings.
The ratings, meanwhile, are moderated by the Group’s exposure to regulatory risk, its aggressive expansion strategy and the execution risks that its expansion entails. The gaming industry, owing to its sensitive nature, faces regulatory controls that may evolve over time.
The Group is continuously on the lookout for opportunities to expand. Genting Malaysia may develop an integrated resort in Miami, the US, in the event of a favourable legislative outcome on casino gaming in the state. We also do not discount future expansions in the US by Genting Malaysia. The overseas expansion may expose the Group to significant execution risks, including challenging operating landscape in new markets and considerable demand on resources. The Group’s current strong financial metrics could change in the event of an aggressive expansion.
Genting Malaysia is a 49.3%-owned subsidiary of Genting Berhad (Genting). Besides businesses held via Genting Malaysia, the larger Genting group is one of the only 2 casino resort operators in Singapore and has interests in oil-palm plantations, power generation, property development and oil and gas assets. Given that we view Genting Malaysia and Genting as having a very close relationship under our Parent-Subsidiary Rating Links methodology the ratings of the 2 entities are closely linked. Meanwhile, as the proposed debt programme is backed by a full, unconditional and irrevocable corporate guarantee from Genting Malaysia, its enhanced rating is based on the credit profile of the Group.
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