Moody’s Investors Service has placed casino developer and operator NagaCorp Ltd’s ‘B2’ corporate family rating on review for downgrade, on what it said was “heightened refinancing risk” for the Hong Kong-listed firm. The ‘B2’ senior unsecured rating on the company’s U.S. dollar bond was also placed on review, stated the ratings agency in a Thursday report.
NagaCorp has a long-life monopoly casino licence for the Cambodian capital, Phnom Penh, where it operates its NagaWorld resort complex.
“The ratings review reflects the likelihood of a downgrade if NagaCorp fails to make substantial progress over the next three months to refinance its outstanding US$472 million bond coming due in July 2024,” said Moody’s analyst Yu Sheng Tay, as cited in the report.
The ratings agency stated that NagaCorp was “exposed to heightened refinancing risks” given July 2024 deadline and “tight funding conditions”.
“The bond is the company’s only debt in its capital structure, excluding lease liabilities. NagaCorp also has limited sources of liquidity given its lack of bank facilities and divestible non-core assets,” said Moody’s.
Despite an expected improvement in NagaCorp’s earnings, Moody’s believes the casino operator “will likely rely on external financing to repay its bond”. As of December 31, the company had cash and deposits of US$175 million.
“Together with expected operating cash flows of around US$535 million through to June 2024, this is inadequate to cover the company’s cash uses, which include the bond maturity and discretionary spending such as dividends and development capital expenditure,” stated Moody’s.
The institution noted that NagaCorp “has the flexibility to significantly reduce or defer its discretionary spending to shore up liquidity and repay the bond through internal cash flows”.
Nonetheless, Moody’s said it expected the company to “continue incurring capital expenditure for its Naga 3 development project,” an expansion to its existing property.
In November, NagaCorp launched a tender offer and repurchased about US$69.5-million of principal amount of the group’s senior notes.
Brokerage Morgan Stanley Asia Ltd said in a note in mid-February that it was “likely” that NagaCorp would have to refinance its 2024 bonds, given the expected pace of recovery in Cambodia’s gaming market.
While the expected return of Chinese package tours in the second quarter of 2023 might “help” NagaCorp’s business recovery, Morgan Stanley said refinancing of the firm’s 2024 bonds “seems likely” given the institution’s “base-case recovery pace”.
In early February, NagaCorp reported a net profit of nearly US$107.3 million for full-year 2022, compared to a loss of US$147.0 million in the prior year. Such profit was on revenue that rose by 104.0 percent year-on-year, to US$460.7 million.
The group generated earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$245.4 million for full-year 2022, compared to US$15.6 million in the previous year.
Moody’s expects NagaCorp’s earnings to improve over the next two years as “Cambodia’s tourism sector continues to recover and benefit from the return of tourists from China”.
The rating agency estimates NagaCorp will generate EBITDA of about US$370 million in 2023 and US$485 million in 2024. “Such levels remain below its earnings in 2019,” it added.
