Fitch Ratings Inc acknowledged in a Thursday note that Japanese leisure conglomerate Universal Entertainment Corp, the ultimate parent of the Okada Manila casino resort in the Philippines, was a party to a “dispute with its founder and former chairman Kazuo Okada”.
The credit ratings institution said that had affected how it evaluated the company’s environmental, social and governance score.
But it nonetheless forecast Okada Manila could reach 80 percent of pre-pandemic revenue within this year.
In April, Okada Manila said it was starting to offer via its casino premises, online gaming for domestic customers in that nation with effect from mid-April.
Fitch said in its Thursday note it was upgrading the Japanese parent’s long-term issuer default rating (IDR) to ‘B-’ from ‘CCC+’, with a ‘stable’ outlook.
A key driver for Fitch’s upgrade was its assumption that revenue at Okada Manila “will be around 80 percent of the pre-pandemic level in 2022 before recovering almost fully in 2023, broadly in line with our assumptions for comparable global casino markets.”
The agency also upgraded the rating of Universal Entertainment’s outstanding U.S. dollar senior secured notes to ‘B-’ from ‘CCC+’ with the recovery rating maintained at ‘RR4′.
The core business of Universal Entertainment has been pachinko machines for that popular Japanese leisure segment. But before the pandemic – and associated travel and capacity restrictions – Okada Manila had been expanding its contribution to group earnings.
Fitch noted that while Okada Manila was “the largest casino in Manila’s Entertainment City,” it was nevertheless Universal Entertainment’s “only integrated resort asset”.
“The integrated resort is very small [business-wise], compared with that of most of its rated peers,” observed the report authors, Satoru Aoyama, Akash Gupta, and Kalai Pillay.
Fitch said completion of outstanding phases of Okada Manila – due by 2023 – would “ease the capital expenditure burden” for the parent.
“We assume total capex of JPY15 billion [US$117 million] and JPY8 billion in 2022 and 2023, respectively, after the completion of the construction of its JPY335-billion integrated facilities.”
The authors added this was “substantially lower” than the total capital expenditure of JPY100 billion in 2018 to 2021.
Fitch expected Okada Manila to generate “low negative free cash flow in 2022 before it turns positive starting 2023 on rising revenue, cost reductions and the completion of the IR”.
Fitch said it took a “neutral” view on a planned listing for the Okada Manila asset, via a merger – due by end-June 2022 – between a Universal Entertainment subsidiary in the Philippines, Okada Manila International Inc, and 26 Capital Acquisition Corp, a special-purpose acquisition company listed on Nasdaq.
“The merger, if it takes place, will give Universal Entertainment additional access to capital market financing through fund raising at Okada Manila International. We think the listing will have a neutral impact on the ratings until it offers tangible benefits to Universal Entertainment,” said the Fitch analysts.
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