The late Lim
KUALA LUMPUR: RAM Ratings sees Genting Bhd
strengthening its competitive position and improving its performance after completing its RM10.4bil rejuvenation project for its second largest leisure and hospitality (L&H) contributor, Resorts World Genting (RWG).
RAM had on Monday reaffirmed Genting's 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, it reaffirmed the AAA(s)/stable ratings of the RM2bil medium term notes (MTN) Programme (2012/2032) and RM1.60bil MTN programme (2009/2024). The notes were issued by the group’s units Genting Capital Bhd and GB Services Bhd, respectively.
The debt programmes are backed by full, unconditional and irrevocable corporate guarantees from Genting.
Its head of consumer and industrial ratings Kevin Lim said on Monday the rating reaffirmation was premised on Genting’s better-than-anticipated operating performance and financial metrics in FY Dec 2017.
He said RAM expects the group’s credit metrics will remain supportive of its ratings.
“We foresee Genting to take on higher borrowings over the next three years to partially fund its sizeable capex and potentially higher dividend payments, which would result in a weaker financial profile,” he said.
However, he expected Genting to enhance its competitive position and improve its performance after its RM10.4bil rejuvenation project for RWG.
In FY Dec 2017, Genting’s OPBDIT increased by 10.8% year-on-year to RM5.7bil (FY Dec 2016: RM5.1bil), 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,” he said.
Over the next three years (2018-2020), Genting is expected to incur capex of about RM26bil.
Most 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,” he said.
RAM also pointed out Genting’s debt load is estimated to peak at about RM36bil by FY Dec 2020 (end-December 2017: RM27.08bil).
There is limited headroom for further debt expansion without a meaningful increase in contributions from its hefty investments, it added.
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.
However, RAM expects Genting to retain its superior liquidity position with cash levels of above RM20bil over the next three 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 US$388mil investment in Massachusetts,” it said.
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