“The changes, in particular the increase in casino duties of up to 35%, is credit negative for Genting Bhd (Baa1 stable) because earnings contribution from its Malaysia leisure and hospitality segment will fall and consequently weaken the group's leverage,” it says.
Genting currently pays casino duties of up to 25% on gaming revenue but under the Budget 2019, it will have to pay the higher duty.
Moody's said the Budget 2019 that will impact Genting include: (1) casino license fee will increase to RM150mil per year from RM120mil; (2) casino duties will increase up to 35%; and (3) machine dealer's license will increase to RM50,000 per annum from RM10,000.
The rating agency expects Genting's earnings before interest, interest, tax and depreciation (Ebitda) to decline by around RM650mil in 2019 under a stressed scenario, where casino duties of additional 10% on gaming revenue starts from Jan 1, 2019.
The decline will erode the likely initial gains the group will achieve in 2019 following the completion of its Genting Integrated Tourism Plan (GITP) at Resorts World Genting, Malaysia's sole land-based casino.
GITP, which started in 2013, is a development that will enhance Resorts World Genting with (1) additional food and beverage offerings, and entertainment and retail areas; (2) a new indoor theme park; and (3) rebuilding of the outdoor theme park as a 20th Century Fox World theme park.
“Consequently, we expect Genting's credit metrics to weaken, but remain within its Baa1 rating parameters. Leverage, as measured by debt/EBITDA will likely increase to 3.8 times in 2019, from 3.5 times in 2018 . Retained cash flow (RCF)/debt will likely weaken to 12% from 13% over the same period,” it said.
Although Genting's credit metrics are expected to remain within their rating parameters of Baa1, there is limited headroom to accommodate an increase in debt until construction of Resorts World Las Vegas (RWLV) completes and the new integrated resort starts contributing to the group's earnings.
Ground breaking of RWLV took place in May 2015 and its first phase of development is currently underway with the completion targeted for 2020.