KUALA LUMPUR: The rating on Genting Bhd Genting; BBB/Negative/--) will come under further pressure if the lockdown in Malaysia and capacity restrictions in Singapore are extended, says S&P Global Ratings, as Genting cannot offset the impact through other financial means.
“Genting's delayed recovery in operations and elevated capital expenditures continue to offer thin rating headroom over the next 12-18 months.
“The recovery of the company's debt-to-earnings before interest, tax, depreciation and amortisation (Ebitda) ratio to below three times and ratio of funds from operations to debt to over 30% could be pushed beyond 2022, if lockdown and capacity restrictions persist, ” it said in a statement on Tuesday.
S&P said the recently imposed lockdown in Malaysia and capacity curb in Genting's two key operating countries, will likely weaken earnings and operating cash flow for the rest of first-half 2021, adding further pressure on its credit quality.
While confirmed cases in Malaysia trending down from over 7, 000 daily in early June, Genting's operations for 2021 may not recover to S&P's level of expectations unless vaccination rate speeds up significantly in Malaysia.
Malaysia's interstate travelling ban has already lowered the company's first-quarter 2021 revenue and Ebitda by 26% and 54%, respectively, compared with fourth-quarter 2020.
“Nevertheless, we believe the grand opening of Resorts World Las Vegas LLC (RWLV; BBB-/Negative/--) later this month will support Genting's diverse business mix and soften current operational headwinds in Southeast Asia.
“Visitations to Las Vegas Strip had recovered to about 70% of pre-pandemic levels in April 2021. Furthermore, the high proportion of fully vaccinated individuals in the U.S. at 42% has reduced the anxieties around Covid-19 and is supportive of RWLV's business ramp-up for the rest of 2021, ” it said.
S&P said similarly, revenue from Genting's New York operations in the first quarter of 2021 returned to 70% of pre-pandemic levels and the US operations could now recover faster than we had expected given operating hours normalized from April.
Genting's UK operations also restarted in mid-May after a long closure since the middle of last year.
“We believe Genting is striving to control its negative discretionary cash flow by adding flexibility in its investment plans and contemplating plans to dispose non-core assets.
“Following the completion of its Malaysian theme park and RWLV, its main pending project is the Resorts World Sentosa 2.0 expansion.
“While this would continue to elevate the company's investment plans, we expect the timing and level of investments to be partly dependent on current operational conditions. The group's large cash balance will support its ongoing expansionary spending and periods of negative discretionary cash flows, ” it said.
Genting's asset disposal plans include Genting Malaysia Bhd.'s (BBB/Negative/--) planned disposal of a U.K. hotel, which we expect to be completed in the first half of this year.
The rating agency said the report does not constitute a rating action.