Published on 21 May 2018.
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 premised on Genting’s better-than-anticipated operating performance and financial metrics in FY Dec 2017, and our expectation that the Group’s credit metrics will remain supportive of its ratings,” says Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. “We foresee Genting to take on higher borrowings over the next 3 years to partially fund its sizeable capex and potentially higher dividend payments, which would result in a weaker financial profile. On the other hand, we anticipate a strengthening of its competitive position and improved performance after the completion of its RM10.4 billion rejuvenation project for its second largest leisure and hospitality (L&H) contributor, Resorts World Genting (RWG),” adds Lim.
In FY Dec 2017, Genting’s OPBDIT increased by 10.8% y-o-y to RM5.7 billion (FY Dec 2016: RM5.1 billion), mainly driven by the better showing of its L&H business in Singapore as well as power and plantation divisions. Within the L&H division, the stronger result from Singapore was partly offset by the lower earnings of its Malaysian operations due to the elevated operating expenses of its new facilities. Going forward, we expect Genting’s improvement in OPBDIT to continue. Its L&H division is envisaged to benefit from the progressive opening of RWG’s Genting Integrated Tourism Plan (GITP) facilities, allowing it to attract regional patrons.
Over the next 3 years (2018-2020), Genting is expected to incur capex of about RM26 billion. The bulk of the capex will be spent on the construction of Resorts World Las Vegas (RWLV), ongoing GITP development and expansion of Resorts World Casino New York City (RWNYC). We also expect the Group to pursue higher dividend payments for the next few years.
Genting’s debt load is estimated to peak at about RM36 billion by FY Dec 2020 (end-December 2017: RM27.08 billion). There is limited headroom for further debt expansion without a meaningful increase in contributions from its hefty investments. Genting’s net gearing is seen to rise to about 0.25 times by end-2020 (end-December 2017: 0.02 times). At the same time, the Group’s funds from operations debt cover on a net debt basis – which takes into account its large cash coffers and liquid instruments – continues to be supportive of the ratings and is estimated to range between 0.4-0.6 times. Genting should retain its superior liquidity position with cash levels of above RM20 billion over the next 3 years.
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 strong 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. Its Bahamas operations continue to be loss making, albeit reducing, 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. 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. The Group may also require a longer gestation period to recoup its investments. Nonetheless, we derive comfort from the experience and track record of Genting in executing and managing large projects. Elsewhere, stalled casino development plans in Miami and Massachusetts in the US have held back the Group’s expansion, which may require Genting to impair its USD388 million investment in Massachusetts.
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