KUALA LUMPUR: S&P Global Ratings has lowered its long-term issuer credit rating on Genting Bhd from 'BBB+' to 'BBB' and its key US subsidiary, Resorts World Las Vegas (RWLV) from 'BBB' to 'BBB-' on slow recovery prospects.
The rating agency said on Friday it lowered the long-term issue ratings on RWLV's senior secured debt and senior unsecured notes to 'BBB-' from 'BBB'. It had a negative outook for both companies.
Explaining the rationale, it expected a slower recovery in Genting Bhd's Malaysia and Singapore gaming operations while RWLV was also likely to ramp up slowly.
“Genting's capital expenditure is likely to remain high in 2020 and 2021 resulting in elevated leverage, ” it said.
S&P Ratings said the negative outlook reflected its expectation that Genting's debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio will breach its downgrade trigger over the next 12-24 months, but recover to be below three times by 2022.
The Covid-19 pandemic is hitting the Genting group harder and longer than it anticipated. Several gloomy events have occurred since it revised the rating outlook on Genting to negative on March 11,2020.
“These will translate into a weaker performance in 2020 and a longer recovery path than we expected.
“Casinos globally have closed operations at different times, and a reopening of all properties remains uncertain.
“Meanwhile, the global economy has weakened with Singapore and Malaysia entering into recession with growing unemployment, ” it said.
S&P Ratings said as revenue recognition in the second quarter will plummet, and the casinos would likely need to comply with social distancing measures as they reopen, it expected the recovery path to take even longer in the weaker macro environment.
RWLV could have a slower ramp-up because it expected Las Vegas to be one of the last gaming markets to recover in the US.
“We believe RMLV's construction is on track to open in summer 2021, but a ramp up will likely be slower than anticipated.
“We foresee structural changes that could alter the attractiveness of Las Vegas as a gaming destination in the next 24 months, ” it said.
Travel fears, restrictions, reduced airline capacity, and shrinking consumer pockets can put pressure on half of Las Vegas' visitors who fly in by air. Businesses could also rethink on conventions, or prefer smaller group meetings or smaller budgets, affecting midweek demand.
As for Genting, it was likely to have high capital expenditure (capex) in 2020. Despite its forecast that the group's Ebitda will drop by almost half in 2020, capex will likely remain high.
This is driven by the tail-end of construction capex at RWLV and land acquisition costs at Genting Singapore Ltd. for its multi-year expansion projects.
Of the US$4.3bil project budget at RWLV, about US$2.1bil has been spent as of March 31,2020, with the rest to be spent in the next 15-18 months.
Meanwhile, the committed S$4.5bil expansion project at Genting Singapore is likely to commence this year. These commitments will push Genting to negative free operating cash flow in 2020 and 2021.
“We believe Genting's leverage will shoot up in 2020 before recovering gradually. In our view, the company's elevated capex in 2020 and 2021, and slow recovery have weakened its financial risk profile.
“We forecast the group's debt-to- Ebitda ratio will spike to 4.5 times to 4.8 times in 2020 and 2.9 times to 3.1 times in 2021, before strengthening to 2.1 times to 2.3 times in 2022, ” it said.
“The negative outlook on Genting reflects our expectation that the group's delayed recovery of its operations and elevated capex have left it with very limited rating headroom in the next 12-18 months.
“We expect Genting's debt-to- Ebitda ratio and ratio of funds from operations (FFO) to debt to recover only in 2022. The outlook on RWLV reflects that on its parent, ” it said.
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