The superyacht Equanimity, belonging to Jho Low, is brought to Boustead Cruise Terminal in Port Klang, Malaysia on Aug 7, 2018. – Reuters
KUALA LUMPUR: Moody's Investors Service expects the increase in capital spending at Genting Bhd
's key subsidiaries -- Genting Malaysia and Genting Singapore, can be met by their existing cash and operating cash flows.
Jacintha Poh, a Moody's vice president and senior credit officer said the dividend cash flows to the parent company Genting Bhd would not be be impacted by the higher capital spending.
Moody's had on Monday affirmed the Baa1 issuer rating of Genting Bhd. At the same time, it affirmed the Baa1 issuer rating of Genting Bhd's unit Genting Overseas Holdings Ltd (GOHL) and the Baa1 backed senior unsecured rating of the notes issued by GOHL Capital Ltd.
“The outlook on the ratings is stable,” said Poh, who is also Moody's lead analyst for Genting Bhd.
To recap, on April 3, 2019, Genting Bhd's 49%-owned Genting Malaysia Bhd (GenM) announced the proposed acquisition of a super yacht -- Equanimity -- for US$126mil (RM515mil) for completion this year.
Genting Bhd's 53%-owned Genting Singapore Ltd (GenS, A3 stable) had on April 3 announced that it would invest S$4.5bil (RM13.5bil) to expand Resorts World Sentosa (RWS).
The expansion of RWS will be delivered in phases with new experiences opening every year from 2020 to a projected completion time around 2025.
Poh pointed out the latest capital spending plans, which do not require debt funding, will not hurt GENB's credit metrics.
“However we continue to expect that Genting Bhd's credit metrics will weaken over the next 12-18 months owing to the group's debt-funded capital spending for the development of Resorts World Las Vegas," Poh said.
She said Genting Bhd had limited headroom to accommodate further increase in debt until the construction of Resorts World Las Vegas completes and the new integrated resort starts contributing to the group's earnings, which is unlikely to be before 2021.
Moody's expects Genting Bhd's capital spending to rise significantly to around RM11bil per annum in 2019 and 2020, from RM6bil in 2018.
More than half of this capital spending will relate to the development of Resorts World Las Vegas, which will be funded by the remaining proceeds from GOHL's US$1.5bil bonds issued in 2017 and Resorts World Las Vegas LCC's latest funding programmes -- the US$1bil bond priced on April 2, 2019 and the US$1.6bil secured credit facilities.
Moody's expects Genting Bhd's leverage, as measured by adjusted debt/EBITDA, will weaken to around 3.8 times in 2019 and 3.7 times in 2020, from 3.4 times in 2018. Retained cash flow (RCF)/debt will likely weaken to around 12% in both 2019 and 2020, from 16% over the same period.
As of Dec 31, 2018, Genting Bhd had maintained a sizeable cash position of RM31bil compared to gross balance sheet debt of RM29bil.
However, over 65% of the group's cash are held at three majority-owned and listed subsidiaries – GenS, GenM and 52%-owned Genting Plantations Bhd -- therefore limiting its ability to access the funds in their entirety.
“While Moody's expects Genting Bhd to generate annual operating cash flows of around RM5.5bil over the next 12 months, more than sufficient to cover short-term debt repayments of RM1.9bil, the group will turn into a net debt position in 2019 as cash is being used to fund multiple development projects across its listed subsidiaries."
"Genting Bhd's Baa1 rating reflects Moody's expectation of stable consolidated cash flow generation from the group's monopoly gaming operation in Malaysia and duopoly gaming operation in Singapore, as well as the group's track record of maintaining excellent consolidated liquidity with sizable cash holdings and a well-managed debt maturity profile.
“The outlook on the rating is stable, reflecting Moody's expectation that Genting Bhd will exercise financial prudence during its current expansion phase and will maintain strong financial flexibility with ample liquidity reserves,” it said.
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