FW: RAM Ratings reaffirms Genting Malaysia's top ratings

Published on 24 Aug 2017.

RAM Ratings has reaffirmed the corporate credit ratings of Genting Malaysia Berhad (GenM or the Group) at AAA/Stable/P1, as well as the AAA(s)/Stable rating of the RM5.0 billion MTN Programme (2015/2035) issued by its wholly owned subsidiary, GENM Capital Berhad. The debt programme is backed by a full, unconditional and irrevocable corporate guarantee from GenM. 

The rating reaffirmation is based on our expectations that GenM’s credit metrics will remain robust despite ongoing expansion plans. Over the next 3 years (2017-2019), the Group is envisaged to incur capex of nearly RM10 billion (FY Dec 2016: RM3.6 billion). Apart from significant capex requirements of the Genting Integrated Tourism Plan (GITP), the Group recently announced the USD400 million expansion of Resorts World Casino New York City (RWNYC), which is scheduled to be completed in mid-2019. Elsewhere, GenM’s operating performance in fiscal 2016 was broadly in line with our expectations.

GenM’s credit profile is supported by its strong business position in Malaysia via Resorts World Genting (RWG), which makes up 60-70% of the Group’s revenue and over two-thirds of its operating profit, respectively. RWG’s strong and stable cashflow is underpinned by predominantly mass-market customers. Furthermore, GenM is one of the leading casino operators in the UK, while its electronic slot operations at RWNYC are the highest grossing in northeastern US – although these operations command much thinner operating margins (ranging from the high single digits to mid-teens). 

“We expect moderate deterioration in GenM’s financial profile after taking into account increased borrowings to fund capex and the gestation periods of its new operations. That said, projected credit metrics are still considered robust,” says Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. On this note, the impact of unexpected expansion plans in the US is partly buffered by RM1.7 billion of proceeds from the sale of cruise operator Genting Hong Kong Limited in 2016. The Group’s net gearing is anticipated to rise to around 0.2 times, reversing its current net-cash position. Meanwhile, GenM’s funds from operations debt coverage is likely to decline to 0.30-0.35 times (FY Dec 2016: 0.50 times) – although still supportive of its ratings (especially considering its large cash pile and liquid instruments).

In FY Dec 2016, GenM’s operating profit before depreciation, interest and tax rose 35.0% y-o-y to RM2.1 billion, fuelled by the stronger results of its UK businesses and a one-off reversal of the expenses of its US operations. On home turf, the results of GenM’s Malaysian operations were relatively unchanged, as growth in the VIP segment was offset by softer mass-market revenue amid subdued consumer sentiment. The Group’s outfit in the Bahamas continued to suffer considerable losses in FY Dec 2016 and is expected to remain in the red over the near term.

The substantial scope and size of the GITP (RM10.4 billion) expose GenM to significant construction and execution risks. The opening of RWG’s 20th Century Fox World theme park had recently been pushed back from end-2017 to 2H 2018. Elsewhere, GenM may require a longer gestation period to recoup its investments, particularly for the GITP, in view of the current market environment. Nonetheless, we derive comfort from the track records of GenM and its parent in executing and managing large projects.

GenM is a 49.3%-owned subsidiary of Genting Berhad (Genting, rated AAA/Stable/P1). Besides businesses held via GenM, the larger Genting group is one of only 2 casino resort operators in Singapore, and has interests in oil-palm plantations, power generation, property development and oil and gas assets. GenM’s ratings mirrors that of its parent, given the very close relationship between the 2 entities. Any weakening of Genting’s credit profile will constrain GenM’s ratings. To this end, we note the aggressive expansion of Genting. Apart from the current developments of RWG, RWNYC and Resorts World Las Vegas, Genting has indicated an interest in bidding for a casino licence in Japan. As Genting’s debts are anticipated to rise substantially to fund ongoing projects, it has limited headroom for further debt expansion.

 

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

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(603) 7628 1162
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