Fitch Ratings Inc says Genting Bhd will likely turn into a net debt position in the coming years due to higher capital expenditure (capex). The Malaysia-based conglomerate is expanding its presence in the United States and is spending billions of U.S. dollars in the revamp of the group’s existing property in Malaysia.
“Genting was in a net cash position as of end-2016, which we estimate will turn into a net debt position in the next three years due to higher capex,” the ratings agency said in a report last week.
Genting was in a net cash position as of March 31, 2017, with reported cash and cash equivalents of approximately MYR34.2 billion (US$7.9 billion), according to the firm’s first quarter earnings results.
Fitch estimates that Genting’s consolidated capex will increase over the next three years and “average about twice of the MYR4.5 billion spent in 2016”. The ratings agency expects Genting to report an annual capex of about MYR8 billion on average between 2017 and 2019 inclusive.
The Genting group is currently developing Resorts World Las Vegas in Nevada, United States. The company expects full-scale construction to start in the third quarter this year, aiming for a 2020 opening.
The group – via Genting Malaysia Bhd – runs Resorts World Genting, Malaysia’s only casino resort, and operates casinos in the United States, the Bahamas and the United Kingdom.
Genting Malaysia has been revamping and opening new facilities at Resorts World Genting, under its Genting Integrated Tourism Plan (GITP). GITP is a multi-phase plan described as a 10-year, MYR10-billion master plan for a major revamp for Resorts World Genting, which will include a theme park called 20th Century Fox World Malaysia.
According to Fitch, Genting Malaysia spent about MYR4 billion up to 2016 in GTIP-related projects.
Despite the increase in capex and the likelihood of Genting turning into a net debt position, the ratings agency said it expects the Malaysian conglomerate’s capital structure to remain conservative.
“We estimate that leverage will still be relatively low with the ratio of net adjusted debt to operating EBITDAR [earnings before interest, taxation, depreciation, amortisation and restructuring or rent costs] less net income attributable to minorities at around 0.6 times by 2019,” said Fitch.
It added: “The group’s management has a track record of prudent capital management, recently evidenced by Genting Singapore Plc’s sale of its stake in a South Korean venture to bolster its cash reserves.”
Genting Singapore announced in November 2016 it was disposing of its rights to participate in a project on South Korean holiday island of Jeju in order to focus on other projects, including a potential investment in Japan. The firm developed and operates the Resorts World Sentosa casino property in Singapore.
In Thursday’s note, Fitch said its capex estimates for Genting do not factor in a potential investment by Genting Singapore in Japan.
Fitch additionally said it was maintaining Genting and Genting Singapore’s long-term rating at ‘A-’, with a stable outlook.
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