Fitch Ratings Inc is keeping its stable outlook for its credit rating for Malaysian gaming giant Genting Bhd because it expects leverage levels to decline after 2020. Fitch Ratings said in a report on Friday that it expected the decline in leverage because of the added contribution Resorts World Las Vegas would make to Genting’s earnings and because of more moderate capital spending.
The credit rating agency says if it becomes clear that Genting is operating with greater-than expected leverage, it may reconsider the current A- rating. Fitch affirmed the long-term foreign-currency issuer default rating for Genting and for its subsidiary Genting Overseas Holdings Ltd.
“Genting’s ratings reflect its monopoly position in gaming in Malaysia and robust market share of around 36 percent in the duopolistic Singapore market [via subsidiary Genting Singapore Ltd],” Fitch says. “Its leisure and hospitality business in these countries together accounts for around 80 percent of consolidated earnings before interest, tax, depreciation and amortisation.”
“The gaming industry in these countries is subject to close regulatory oversight, and the resultant barriers to entry impart a degree of stability to Genting’s cash flows over business cycles,” it added.
Fitch says Genting has a relatively conservative capital structure with a net cash position in the first half of this year. The rating agency says Genting enjoys “very comfortable liquidity” with a reported cash balance of MYR28 billion (US$6.68 billion) compared to total debt of MYR26 billion at the end of June this year.
The rating agency says Resorts World Las Vegas, built by an indirect subsidiary wholly owned by Genting, is developing a casino resort on the Las Vegas Strip that is scheduled to open in 2020.
Fitch estimates that the project will cause capital spending to spike in 2019 and 2020, increasing Genting’s leverage above the level at which the rating agency will consider a “negative rating action”.
“We have maintained a stable outlook based on our expectation that leverage will decline after 2020 with earnings contribution from Resorts World Las Vegas and a moderation in capex,” Fitch says. “However, any material adverse changes to Fitch’s expectation of Genting’s leverage profile may lead to a negative rating action.”
Resorts World Las Vegas is described as a “multibillion-dollar integrated resort” that investment analysts suggested would cost US$4-billion.
The Telsey Advisory Group LLC says Resorts World Las Vegas may face a completion delay. In July, the research house said the opening of the resort was most likely to be later than planned, citing a decline in tourism from China caused by the ongoing U.S.-China trade dispute and sanctions.
Closer to home, Fitch reiterated its position that the Malaysian government’s decision to hike casino duties by 10 percentage points will have little impact on the group’s profitability. Fitch says the increase will cut Genting’s earnings before interest, tax, depreciation and amortisation by about MYR700 million a year. Growth, a reduction in marketing budgets and cutting jobs should offset the increase in the duty on gross revenue to 35 percent.
