Moody's keeps Genting units' debt ratings unchanged

Genting Malaysia fell 23 sen to RM5.82 and erased 2.32 points from the KLCI after it was downgraded by UOB Kay Hian Malaysia Research to Sell from Hold as its second quarter earnings disappointed.

KUALA LUMPUR: Moody's Investors Service is retaining the issuer ratings of two of Genting Bhd's units with a stable outlook over a US$1bil notes issued in January 2017.

It said on Tuesday the Baa1 issuer rating of Genting Overseas Holdings Ltd (GOHL), a unit of Genting Bhd (Baa1 stable), and the Baa1 senior unsecured debt rating of GOHL Capital Ltd – a unit GOHL, remain unchanged. The outlook on the ratings is stable.

The ratings agency issued the note following GOHL's announcement of a tap bond offering on its existing US$1bil notes.

“The tap bond offering has the same terms and conditions as the existing notes and, as with the existing notes, net proceeds will be lent to GOHL through an intercompany loan. 

Incorporated in the Isle of Man, GOHL is an investment holding company that holds a 53%-stake in Genting Singapore PLC, which in turn owns and operates the Resorts World Sentosa integrated resort.

GOHL is a unit Genting Bhd which interests in gaming, leisure & hospitality, plantations, power and oil & gas exploration.

Moody's said both GOHL and GOHL Capital Ltd will be supported by a keepwell deed between Genting Bhd, GOHL, GOHL Capital Ltd and the trustee of the guaranteed notes.

GOHL intends to use the proceeds to replace certain borrowings of Gemting Bhd or for general corporate purposes, which could include investing in the development of the Resorts World Las Vegas project and/or other projects.

"The additional issuance will weaken GOHL's debt servicing ability," says Jacintha Poh, a Moody's Vice President and Senior Analyst.

"Nevertheless, the higher interest expenses from the larger total amount of the notes should be adequately covered by its main income stream, as represented by dividend payouts from Genting Singapore," adds Poh.

In addition, an interest reserve account will be maintained for the notes, with at least one coupon payment in US dollar terms. Such a situation provides an incremental liquidity buffer for investors of the proposed notes.

For FY ended Dec 31, 2016, Genting Singapore PLC (GENS, A3 stable) declared and paid total dividends of S$360mil, an amount which was double the S$180mil for the previous year. 

Moody's expects the higher dividend cash inflow from GENS to cover approximately 2.5 times of GOHL's total cash outflow related to interest expenses.

On a standalone basis, and as of June 30, 2017, GOHL held a cash balance of S$1.5bil and total debt of S$1.4bil. 

Moody's expects the cash balance to fall, as construction progresses at the Resorts World Las Vegas project over the next 12-18 months.

“Consequently, GOHL will likely have to rely on the resources of Genting Bhd to service the principal debt repayment of its guaranteed notes upon maturity in 2027, because it is unlikely that GOHL will accumulate sufficient cash on a standalone basis, even assuming zero dividends paid to Genting Bhd over the life of the notes, unless GENS increases dividend payouts beyond current level.

“GOHL's Baa1 rating reflects its importance and linkage to Genting Bhd. Through its 100% ownership of GOHL, Genting Bhd owns 53% of GENS, which is a core contributor to the group's earnings, contributing more than 40% of consolidated EBITDA since 2011.

“Furthermore, GOHL's core operations are closely aligned with those of GENB, as seen by the fact that its day-to-day operations are managed by Genting Bhd , and its directors are the Chairman and Deputy Chairman of Genting Bhd.” it said.

The Baa1 rating also takes into account Moody's expectation that GOHL — as an integral part of the regulatory chain for the Genting group's gaming operations in Singapore — will likely receive strong support from Genting Bhd in times of need.