A plan by casino developer NagaCorp Ltd to develop a US$350-million non-gaming resort near the UNESCO World Heritage site Angkor Wat, in Siem Reap, Cambodia, was a “credit negative” for the firm at a time of “uncertain” economic outlook for the gaming side of the business, said a Tuesday memo from Moody’s Investors Service Inc.
“The company’s capital spending plans will reduce its liquidity buffer, while the coronavirus pandemic has weakened the economic environment and made the pace of recovery uncertain for the gaming industry,” stated the credit rating firm.
It currently assess NagaCorp at “B1 negative”. Moody’s changed its outlook on NagaCorp’s “B1” ratings from stable to negative in April.
Moody’s noted in its latest memo that as well as Sunday’s announcement from Hong Kong-listed NagaCorp – which has a long-life casino monopoly for Phnom Penh, Cambodia, where it runs the NagaWorld casino resort – the firm was already committed to other major expenditure.
In April last year, NagaCorp said 50 percent of the US$3.5 billion cost, excluding land value, of Naga 3 – a new phase for NagaWorld – would be funded by its chief executive, Chen Lip Keong.
NagaCorp is also pledged to spend circa US$300 million on a casino and hotel complex near Vladivostok in the Russian Far East. A portion of that is already disbursed, according to the company. The scheme is still in development and scheduled to open in 2022, according to the firm’s 2020 interim report, filed in September.
In a voluntary October update on its August and September performance in the Phnom Penh operation, NagaCorp said that what it termed average daily “business volumes” at its mass-market gaming segment in the August-September period had recovered to 97 percent of the average seen in the first quarter of 2020, before the closure of the casino in April until July 8, as a Covid-19 countermeasure.
NagaCorp reported in August net profit of just above US$20.6 million for the first half of 2020, down 91.6 percent from the prior-year period. That was on revenue that fell by 57.7 percent year-on-year, to US$377.5 million, it said.
Moody’s stated in its Tuesday memo: “The company has capacity for additional debt to fund its capital spending plans because of its low leverage.”
The ratings house added: “We expect NagaCorp’s leverage to improve to less than 1.0x in 2021-22, from 2.5x in 2020 and below our 2.5x downgrade guidance.”
The improvement was based on an assumption there would be “recovery in operating conditions and repayment of the company’s senior unsecured notes due May 2021”
Moody’s further noted: “In the third quarter of 2020, NagaCorp reported gaming revenue of US$238 million, which was 43 percent lower than the same period a year ago, but a significant reversal from the preceding quarter.”
Moody’s observed: “We also expect that NagaCorp will generate sufficient cash flows over the next five years to meet its capital spending plans of around US$4 billion without relying on debt. However, NagaCorp’s stated dividend payout ratio of 60 percent, if paid, will pressure the company’s liquidity.”
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