Moody’s Investors Service says it has downgraded to ‘B3’ from ‘B2’ the corporate family rating of casino developer and operator NagaCorp Ltd. The institution has also changed the outlook on NagaCorp to ‘negative’, from ‘ratings under review’, it stated in a Monday report.
The senior unsecured rating on the company’s U.S. dollar bond was also downgraded to ‘B3’, said the ratings agency. The bond is “unconditionally and irrevocably” guaranteed by the major operating subsidiaries of NagaCorp, it noted.
NagaCorp has a long-life monopoly casino licence for the Cambodian capital, Phnom Penh, where it operates its NagaWorld resort complex.
“The rating downgrade and negative outlook reflect NagaCorp’s lack of refinancing progress for its US$472 million U.S. dollar bond coming due in July 2024. The bond forms all of the company’s debt in its capital structure,” said Moody’s analyst Yu Sheng Tay, as cited in the report.
“Despite NagaCorp having reduced its discretionary spending, its ability to repay the bond depends on the pace of earnings recovery, which currently remains uncertain,” added the analyst.
Moody’s stated that there was “increased likelihood of a distressed exchange as funding conditions for Asian high-yield companies remain tight”.
“NagaCorp has limited liquidity sources, given its lack of bank facilities and divestible non-core assets,” it added.
The ratings agency expects NagaCorp’s discretionary spending to decrease “over the next 18 months”.
In early June the casino firm announced that construction of Naga 3, an addition to the NagaWorld gaming complex, had been pushed back by four years, to September 2029. NagaCorp – which hasn’t paid any cash dividends since 2021 – will pay scrip dividends in lieu of cash, as announced in April.
Moody’s said it expects NagaCorp “to spend less than US$50 million on development capital expenditure in 2023, compared with the company’s previous guidance of US$100 million to US$125 million”.
“Moody’s views NagaCorp’s reduction in discretionary spending as credit positive. However, the company’s ability to generate sufficient free cash flow to repay the bond depends on the pace of earnings recovery, which currently remains uncertain,” it added.
According to the institution, NagaCorp’s earnings “will likely improve over the next 18 months,” as Cambodia’s tourism sector “continues to recover and benefit from the return of Chinese tourists”.
Moody’s forecasts that the casino operator could generate earnings before interest, taxation, depreciation, and amortisation (EBITDA) of “around US$350 million to US$370 million in 2023, and US$485 million in 2024”.
In the first quarter of 2023, the company generated EBITDA of US$59 million, down 3.3 percent year-on-year “due to an increase in staff cost and luck factor”.
