PETALING JAYA: Local gaming titan Genting Bhd’s rating of Baa2 has been affirmed by Moody’s Investors Service, which has also posted the same rating for Genting’s associate company Genting Overseas Holdings Ltd (GOHL).
Subsidiary Genting Singapore (Ltd), meanwhile, has received the A3 issuer rating, which is two notches higher than the Baa2, itself being the ninth highest in Moody’s Long-term Corporate Obligation ranking.
The Baa2 rating is medium grade, two ranks above the cut-off for junk bonds, while the A3 signifies that the issuer has financial backing and some cash reserves with a low risk of default.
Moody’s has also affirmed the Baa2-backed senior unsecured rating on the notes issued by GOHL Capital Ltd, a wholly-owned subsidiary of GOHL, with the notes guaranteed by GOHL.
GOHL and GOHL Capital are supported by a keepwell deed between Genting, GOHL, GOHL Capital and the trustee of the guaranteed notes.
More importantly, the rating agency has also changed the outlook on all the aforementioned Genting entities to “stable” from “negative”.
Moody’s analyst Tay Yu Sheng said the change in perspective of the entities to stable and its ratings affirmation reflect its expectation that credit metrics across the Genting group will improve over the next 12 to 18 months, supported by continued recovery in operating performance.
“For Genting, it will also benefit from a full-year earnings contribution from Resorts World Las Vegas,” he said.
Throwing in a word of caution, Tay said the group’s plans to expand its New York gaming operations under Genting Malaysia Bhd may affect its credit quality.
It added that such developments, including the timing and funding structure of the investment, would ultimately hinge on the awarding of the casino licence, which remains uncertain at present.
Moody’s projected that Genting’s consolidated earnings before interest, taxes, depreciation and amortisation (Ebitda) will increase to around RM8.9bil this year from RM7bil in the 12 months ended Sept 30.
The ratings outfit said the higher earnings for Genting reflect an ongoing recovery in the group’s leisure and hospitality businesses, particularly in Malaysia and Singapore, where lockdown restrictions were eased last year.
At the same time, Moody’s also expects Resorts World Las Vegas, which opened in June 2021, to contribute meaningful Ebitda to Genting in 2023.
As such, Genting’s leverage, as measured by debt-to-Ebitda ratio, will improve to around 4.5 times in 2023 and to around four times next year, from 6.1 times for the 12 months ended Sept 30 last year.
Moody’s said the group’s retained cash flow/net debt ratio will also improve to around 20% in 2023 and 2024, from 13%.
On the other hand, Moody’s said if Genting wins a casino licence in New York, it could ironically throw a spanner in the group’s efforts to move toward the 4.0 debt-to-Ebitda figure, because of upfront licence fees and development costs which could go beyond US$1bil (RM4.4bil).
Moody’s said although the outcome of the casino licence bid and funding structure for the associated cash outlay remain uncertain, a material increase in debt will derail its expectation of deleveraging.
This indicates an aggressive financial policy, thereby exerting downward pressure on Genting’s rating,” it said.
The ratings agency nevertheless reiterated that its affirmation of Genting’s Baa2 rating reflects the group’s strong business profile, with the group having diversified gaming operations across six countries and holding duopoly and monopoly market positions in Singapore and Malaysia, respectively.