Fitch affirms Genting Bhd 'A-', Outlook stable


Genting Singapore delivered positive first half 2018 results

KUALA LUMPUR: Fitch Ratings has affirmed gaming conglomerate Genting Bhd's rating at 'A-' due to its monopoly position in gaming in Malaysia and robust market share in Singapore while the outlook is stable.

The ratings agency said on Thursday the A- was for Genting's long-term foreign-currency issuer default rating (IDR) at 'A-'. 

Fitch has also affirmed the long-term foreign-currency IDR on Genting's unit Genting Overseas Holdings Limited (GOHL) at 'A-', which is equalised with Genting's rating. 

“Genting's ratings reflect its monopoly position in gaming in Malaysia and robust market share of around 36% in the duopolistic Singapore market.

“Its leisure and hospitality (L&H) business in these countries together accounts for around 80% of consolidated earnings before interest, tax, depreciation and amortisation (EBITDA),” it said. 

Fitch pointed out the gaming industry in these countries is subject to close regulatory oversight, and the resultant barriers to entry impart a degree of stability to Genting's cash flows over business cycles. 

Genting also enjoys some diversification benefits from L&H assets in the UK, the US and the Bahamas as well as businesses such as oil-palm plantations, power, property and oil and gas. 

Genting has a relatively conservative capital structure with a net cash position as of 1H18. 

Resorts World Las Vegas LLC, a unit of indirect subsidiary of Genting, is developing a multi-billion dollar integrated resort on the Las Vegas Strip (RWLV), which is targeted to open by end-2020. 

“We estimate that the project will increase Genting's capex in 2019-2020, which will raise Genting's leverage, measured by the ratio of consolidated adjusted net debt to operating EBITDAR less net income attributable to minorities, above 1.0 time, the level at which Fitch will consider negative rating action of, by 2020. 

“We have maintained a stable outlook based on our expectation that leverage will decline after 2020 with earnings contribution from RWLV and a moderation in capex. 

“However, any material adverse changes to Fitch's expectation of Genting's leverage profile may lead to a negative rating action,” it cautioned. 

Fitch's key rating drivers

RWLV capex to drive leverage: Ficth estimates spending on RWLV to account for more than 60% of Genting's total capex of around RM19bil in 2019-2020. 

Genting's annual capex in 2019-2020 will be much higher than our estimate of around RM6bil in 2018 and the RM4bil annually in 2014-2017. 

“As a result, we estimate that Genting's leverage will increase to above 1.0x by 2020. We expect leverage to decline thereafter after RWLV opens. The group's track record of  prudent capital management supports our expectation,” it said. 

Healthy Malaysia performance to offset tax: The Malaysian government will increase casino duties by 10 percentage points from 2019, which Fitch estimates will cut Genting's EBITDA by around RM700mil a year. 

“Genting is reviewing its marketing strategy and cost structure to mitigate the impact and we expect rationalisation of rebates and commissions and potential payroll reductions to provide annual cost benefits of at least RM150mil on average over the next three years. 

“We also expect revenue growth, particularly from the non-gaming segment, at Genting's Malaysian complex, Resorts World Genting (RWG), to mitigate the impact of the tax increase. 

“Visitor arrivals at RWG rose 21% on-year in 1H18 and the resort aims to  open more attractions, such as a new indoor theme park, to drive growth in 2019 and the medium term,” Fitch says.
  
Stable operations in Singapore: Genting Singapore, which accounted for about 50% of Genting's consolidated EBITDA and around 40% of consolidated cash in 2017, continued its strong operating performance in 9M18 with EBITDA growing by 6% (2017: 48%), supported by VIP rolling-chip volume growth. 

Fitch expects Genting Singapore to maintain stable EBITDA through continued cost discipline, a prudent credit policy and steady growth in Singapore visitor arrivals (9M18: 7.5%; 2017: 6.2%). 

Fitch does not expect competitive pressures in the Singapore market to intensify as the government is unlikely to issue another casino licence over the medium term.

GOHL ratings equalised with parent's: GOHL's ratings are equalised with that of Genting due to Fitch's assessment of strong operational and strategic ties, in line with Fitch's Parent and Subsidiary Rating Linkage criteria. 

GOHL is 100% owned by Genting, and is the holding company for Genting's 52.8% stake in Genting Singapore, which owns 100% of Resorts World Sentosa, an integrated resort with a casino, hotels, theme parks, and retail outlets, in Singapore.


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