FW: RAM Ratings reaffirms Genting group's global scale rating at gA2, ASEAN and national scale rating at seaAAA and AAA

Published on 08 Sep 2017.

RAM Ratings has reaffirmed Genting Berhad’s (Genting or the Group) global corporate credit ratings (CCR) of gA2/Stable/gP1 and its respective ASEAN and national CCR of seaAAA/Stable/seaP1 and AAA/Stable/P1. Concurrently, we have reaffirmed the AAA(s)/Stable ratings of the RM2.0 billion MTN Programme (2012/2032) and RM1.60 billion MTN Programme (2009/2024) issued by the Group’s wholly owned subsidiaries, Genting Capital Berhad and GB Services Berhad, respectively. The debt programmes are backed by full, unconditional and irrevocable corporate guarantees from Genting. 

“The rating reaffirmation is based on our expectation that Genting’s credit metrics will remain supportive of its ratings, despite significant capex to fund ongoing projects. However, there is limited headroom for further debt expansion without a concurrent meaningful increase in contributions from its hefty investments,” says Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. Over the next 3 years (2017-2019), Genting is expected to incur capex of almost RM24 billion, which will be partially funded by debt. The bulk of the capex will be used for the construction of Resorts World Las Vegas (RWLV) and the development of the Genting Integrated Tourism Plan (GITP). Genting also recently announced the USD400 million expansion of Resorts World Casino New York City (RWNYC). Meanwhile, Genting’s operating performance in fiscal 2016 was broadly in line with our expectations.

We envisage increased borrowings and the gestation period of Genting’s new operations may weaken its financial profile. The impact, however, is partly moderated by disposal proceeds totalling RM4.7 billion in FY Dec 2016 and 1Q FY Dec 2017. The Group’s heftier debt burden will cause net gearing to rise to around 0.2 times over the next 3 years, reversing its net-cash position as at end-December 2016. At the same time, its funds from operations (FFO) debt coverage is likely to stand at 0.15-0.20 times (FY Dec 2016: 0.23 times). Genting’s FFO net debt cover – which takes into account its large cash balances and liquid instruments – is estimated to come in at 0.45-0.60 times and will continue to support its ratings. 

Genting’s operating profits before depreciation, interest and tax (OPBDIT) increased 12.0% y-o-y in FY Dec 2016, mainly driven by its leisure & hospitality (L&H) and plantation divisions. Within the L&H division, the stronger results of Genting’s UK business and a one-off reversal of the expenses of its US operations had offset the weaker performance of the Group’s Singapore business. 

Going forward, we expect Genting’s OPBDIT to maintain its uptrend in FY Dec 2017 amid Resorts World Sentosa’s (RWS) cost-efficiency initiatives and lower impairments. Despite the progressive opening of GITP facilities, Resorts World Genting’s (RWG) performance is likely to stay soft, given a heftier operating cost. Meanwhile, the commissioning of the Banten power plant is expected to lift the contribution of Genting’s power division.

The ratings continue to reflect Genting’s strong business positions in the Malaysian, Singaporean and UK gaming markets. Underpinned by RWG’s monopolistic position in Malaysia and RWS’s dominant foothold in Singapore’s gaming duopoly, the Group’s operating margins are among the highest of gaming groups. Genting is also among the UK’s leading casino operators and the highest-grossing video gaming machine operator in Northeastern US – although these operations command much thinner operating margins (ranging from the high single digits to mid-teens). Its Bahamas operations continue to be loss making owing to the low volume of business.  

The ratings are moderated by Genting’s aggressive expansion strategy, execution and construction risks as well as the regulatory risk to which the Group is exposed. We note that apart from the current developments of RWG, RWLV and RWNYC, the Group has indicated an interest in bidding for a casino licence in Japan. 

Substantial concurrent expansions, particularly into new markets, will entail significant execution and market risks. Any cost overruns would heighten the already considerable demand on Genting’s resources, while setbacks in the scheduled opening of projects would delay the improvement of its financial profile. Elsewhere, Genting may require a longer gestation period to recoup its investments, particularly in the GITP and RWLV, given the current market environment. Nonetheless, we derive some comfort from the experience and track record of the Group in executing and managing large projects.

 

Analytical contact
Amy Lo
amy@ram.com.my
(603) 7628 1078

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my