RAM Ratings is neutral on Genting’s proposed asset acquisitions in Miami

Published on 07 June 2011

RAM Ratings opines that the proposed acquisitions by Genting Berhad’s (Genting or the Group) indirectly owned subsidiary - Bayfront 2011 Property, LLC (Bayfront) - in Miami, Florida, will have no immediate impact on the Group’s credit profile. Genting’s respective long- and short-term corporate credit ratings currently stand at AAA and P1 while the RM1.60 billion Medium-Term Notes Programme (2009/2024) of its wholly owned GB Services Berhad carries an enhanced issue rating of AAA(s), backed by an unconditional and irrevocable corporate guarantee from Genting. Both long-term ratings have a stable outlook.

On 27 May 2011, Genting announced that Bayfront had entered into a sale and purchase agreement with The McClatchy Company and Richwood, Inc to acquire approximately 13.9 acres of freehold waterfront properties in downtown Miami; these include an office-cum-warehouse building (known as the Miami Herald Building) and land for USD236 million (approximately RM710 million) in total.

RAM Ratings is of the view that the proposed acquisition has no impact on Genting’s credit profile given the size of the asset acquisitions vis-à-vis the Group’s strong balance sheet and enviable cash hoard. “Genting’s consolidated cash amounted to RM15.46 billion as at end-March 2011. Although the purchase consideration will be largely debt-funded, we expect Genting’s cashflow-protection measures to remain strong at around 0.50 times (annualised 1Q FY Dec 2010: 0.67 times). This is backed by its stable contribution from Resorts World Genting (RWG) as well as higher-than-expected contribution from Resorts World Sentosa (RWS).” elaborates Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

The proposed acquisition is expected to pave way for the Group’s proposed development of Resorts World Miami (RWM) over the medium to long term. This represents Genting’s second venture in the United States, after its New York’s video lottery facility – Resorts World New York (RWNY), which is slated to open in 2H 2011. The initial master plan for Resorts World Miami will include mixed developments such as hotels and convention as well as entertainment centres. We note that if Genting were to proceed with the proposed development on a big scale without gaming operations, the corresponding return on investment is envisaged to be lower than that of its existing integrated resorts with gaming operations such as RWS and RWG. As a result, RWM may not be a major contributor to the Group’s earnings. RWM would also need to compete with existing renowned resorts in Miami.

However, we do not discount the possibility that Genting may expand its gaming operations should Florida’s gaming industry be liberalised and the development of large-scale destination resorts with gaming facilities be allowed. All said, RAM Ratings will reassess the impact of the proposed development on the Group’s credit profile upon greater clarity on the proposed development plans.