Moody's downgrades Genting, Genting Overseas Holdings

However, Moody's expects Genting Bhd to maintain excellent liquidity on a holding company basis, helped by its sizeable cash position of RM3.5bil as of Dec 31, 2019 with no debt maturity until 2022.

KUALA LUMPUR: Moody's Investors Service has downgraded the issuer rating of Genting Bhd to Baa2 from Baa1.

In its rating announcement on Tuesday, Moody's also downgraded the issuer rating of Genting Overseas Holdings Ltd (GOHL), a unit of Genting Bhd, to Baa2 from Baa1.

Moody's also downgraded the backed senior unsecured rating of the notes issued by GOHL Capital Ltd, a unit of GOHL, to Baa2 from Baa1. The notes are guaranteed by GOHL.

Both GOHL and GOHL Capital Ltd are supported by a Keepwell Deed between Genting, GOHL, GOHL Capital Ltd and the trustee of the guaranteed notes.

Moody's has confirmed the A3 issuer rating of Genting Singapore Ltd (GenS).

“The outlook on all ratings has been changed to negative from rating under review,” it said, adding these actions conclude the review for downgrade initiated on March 16.

In its rating rationale, it said the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.

“The combined credit effects of these developments are unprecedented. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer

demand and sentiment,” it said.

Moody's said more specifically, the expected weakening in the credit profiles of the Genting group of companies, including the group's exposure to Singapore and Malaysia, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the group remains vulnerable if the outbreak continues to spread.

Moody's said it regarded the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

“Today's action reflects the impact on the Genting group companies of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered,” it said.

"The downgrade reflects our expectation that Genting Bhd's credit metrics will weaken and remain at levels no longer consistent with its Baa1 rating, driven by the weakened operating performance and the temporary closure of its integrated resorts worldwide due to the coronavirus outbreak at a time when debt is increasing to fund the development of Resorts World Las Vegas," Jacintha Poh, a Moody's vice president and senior credit officer.

Moody's expects Genting Bhd's credit metrics as measured by debt/ EBITDA to increase to 9.6 times in 2020 from 4.2 times in 2019, before gradually recovering to around 6.0 times in 2021 and around 5.0 times in 2022.

Moody's has incorporated 100% of the debt at Empire Resorts, Inc., a company in which Genting Malaysia Bhd (a key subsidiary of Genting Bhd) holds 49% of the common stock, will be called upon to shoulder Empire Resorts' debt burden if necessary.

Genting Bhd's Baa2 rating also reflects its holding company status, including the full control of GOHL.

While GENS generates around 45% of the group's consolidated EBITDA in 2019, it is essentially debt free. Consequently, the leverage for Genting Bhd, excluding GENS, will be higher than its

consolidated metrics.

The negative outlook reflects uncertainty around when the Genting group's integrated resorts will reopen and the pace at which operating performance will recover. At the same time, the negative outlook reflects uncertainty around the extent of support required by the newly acquired and weaker Empire Resorts.

However, Moody's expects Genting Bhd to maintain excellent liquidity on a holding company basis, helped by its sizeable cash position of RM3.5bil as of Dec 31, 2019 with no debt maturity until 2022.

Environmental, social and governance (ESG) issues are material to the rating outcome and were assessed as follows:

The group's power generation and oil and gas businesses operate in sectors that have been identified as having elevated environmental risk.

Nevertheless, earnings contributions from these segments remain small, with the leisure and hospitality businesses contributing close to 90% of Genting Bhd's reported EBITDA in 2019.

The group's leisure and hospitality segment is exposed to elevated social risks, particularly in terms of evolving demographic and societal trends, which could drive a change in demand away from traditional casino-style gaming.

These risks are somewhat mitigated by the company's value proposition as a lifestyle destination such as Resorts World Sentosa, Resorts World Genting and the development of Resorts World Las

Vegas, with significant nongaming attractions, including theme parks and various retail outlets.

Moody's has also considered governance risk stemming from concentrated ownership, because Genting Bhd is ultimately controlled by the Lim family.

“Moody's views the 49% acquisition of Empire Resorts - a related-party transaction - as credit negative, because Empire Resorts has weak credit quality and requires debt restructuring.

“Nonetheless, governance risk is partially mitigated by the oversight exercised through Genting Bhd's eight-member board of directors, which includes five independent directors. In addition, Genting Bhd is subject to regulatory overview from the relevant gaming authorities in the jurisdictions it operates in,” it said.
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