Genting's ratings unaffected despite termination of outdoor theme park, says RAM

KUALA LUMPUR: RAM Rating does not expect Genting Malaysia Bhd (GenM) and its parent, GENTING BHD's ratings to be immediately affected by the sudden termination of the 20th Century Fox World outdoor theme park.

It said on Tuesday the sudden termination of the 20th Century Fox World outdoor theme park as a negative development for GentingM and Genting.

This comes on the heels of the higher gaming duties for GenM’s Malaysian gaming operations, recently announced under Budget 2019. 

“While these are major setbacks to GenM and Genting, we do not expect the ratings of either entity to be immediately affected given their financial strength,” it said.

Slated to open in 1H 2019, the outdoor theme park had been a key feature of Resorts World Genting’s (RWG) 10-year redevelopment plan under the Genting Integrated Tourism Plan (GITP). 

RAM’s head of consumer and industrial ratings Kevin Lim said: “While the theme park had not been seen as a significant profit contributor on its own, it had been anticipated to be a crowd-puller as the world’s first 20th Century Fox World outdoor theme park. 

“This would indirectly increase the footfall of the casinos at RWG and complement GenM’s traditionally higher-margin gaming operations.

“Without the outdoor theme park, we expect the growth of visitors at RWG to moderate to single-digit levels in 2019 and 2020, compared to our earlier expectation of low-teens growth,” Lim said.

However, RAM said this, coupled with the heftier gaming duties unveiled under Budget 2019, could slash the operating profit of GenM’s Malaysian operations by almost 30%. 

As such, it envisaged GenM’s net gearing ratio and net funds from operations debt cover (FFODC) to weaken in fiscal 2019, albeit still within its rating thresholds of a respective 0.25 and 0.40 times. 

Beyond 2019, whether GenM’s credit metrics can be maintained within our rating thresholds will depend on its capex needs and the quantum of cost savings achieved. 

The management is currently reviewing GenM’s capex programme and costs to moderate the impact of these operational headwinds. 

Notably, GenM had swiftly announced certain revisions to the benefits under its rewards programme, which will take effect on Jan 1, 2019. 

Part of its planned capex will also be deferred. 

“We expect GenM’s actual capex to be considerably lower than the earlier projected RM8.5bil for fiscal 2018–2020, although details are still fluid at this juncture. The ratings of GenM will be reassessed when more information is made available,” Lim said. 

Given GenM’s very close relationship with Genting, the former’s ratings are aligned with those of its parent. 

The impact of the aforementioned developments on Genting will be more manageable, given its relatively diversified business. 

The group’s Malaysian leisure and hospitality operations account for 30%-35% of its top line and operating profit while the same contribute a more substantial 60%-80% to GenM. 

“Barring any unexpected rise in capex, the Group’s net gearing ratio and net FFODC are envisaged to stay within our thresholds of a respective 0.25 and 0.40 times up to 2020,” he said. 

To recap, on Nov 27, 2018, GenM announced that Fox Entertainment Group LLC, Twentieth Century Fox Film Corporation and FoxNext LLC issued a collective notice to terminate the outdoor theme park. 

In response, GenM has filed a legal suit against the parties involved, seeking more than US$1bil of compensation.

GenM currently carries AAA/Stable/P1 corporate credit ratings (CCRs) while its RM5bil MTN Programme (2015/2035) and RM3bil MTN Programme (2018/2038) - issued by wholly owned GENM Capital Berhad - are both rated AAA(s)/Stable. 

These debt programmes are backed by full, unconditional and irrevocable corporate guarantees from GenM.

Meanwhile, Genting carries respective global-, ASEAN- and national-scale CCRs of gA2/Stable/gP1, seaAAA/Stable/seaP1 and AAA/Stable/P1. 

Its RM2bil MTN Programme (2012/2032) and RM1.60bil MTN Programme (2009/2024) - issued by 100%-held subsidiaries Genting Capital Berhad and GB Services Bhd, respectively - are rated AAA(s)/Stable. 

Both debt programmes are backed by full, unconditional and irrevocable corporate guarantees from Genting.


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