Fitch Ratings Inc has revised its outlook on Malaysia’s Genting Bhd and on its wholly-owned units Genting Overseas Holdings Ltd and Resorts World Las Vegas LLC, to “negative” from “stable”. Genting Bhd is parent of the casino and plantations network of businesses founded by the Lim family.
The ratings agency has at the same time affirmed long-term issuer-default ratings (IDRs) for Genting Bhd and its units at “A-”.
The outlook revision reflected Fitch’s view of Genting Bhd’s “reduced rating headroom, as we believe the company is pursuing a more aggressive investment strategy”, said a Tuesday memo from the ratings firm.
Fitch estimated Genting Bhd’s capital expenditure would total MYR13 billion (US$3.09 billion) in 2019 and MYR10 billion in 2020.
The ratings house also noted the recent decision of another Genting group unit – Genting Malaysia Bhd, which has a monopoly single-casino licence in Malaysia to operate Resorts World Genting, and runs venues in the United States and the Bahamas, as well as the United Kingdom and Egypt – to “acquire up to 49 percent of the loss-making Empire Resorts Inc in the U.S.”.
Fitch estimates that the acquisition would increase Genting Bhd’s net leverage “by around 0.3 times”, at a time when Genting Bhd has “concurrently committed to other large-scale capital expenditure in the next two to three years” against a background of likely “weaker earnings performance” from the group.
Fitch expects Genting Bhd’s net leverage will “peak in 2020” at 2.1 times before declining to 1.5 times in 2021, “from our previous expectation of 1.6 times and 1.1 times, respectively,” said the ratings house.
Any incremental financial support from the Genting group to Empire Resorts “may exert further pressure on Genting Bhd’s leverage, especially as the planned acquisition is coinciding with the group’s large-scale capex in the next two to three years in Las Vegas and Singapore,” noted Fitch Ratings, referring latterly to Genting Singapore Ltd’s position in Singapore’s casino duopoly, where the group runs the Resorts World Sentosa gaming complex.
Singapore, Las Vegas spending
Genting Singapore would need to make a capital commitment of SGD4.5 billion (US$3.24 billion) as a condition of the Singapore government maintaining the current casino duopoly in the city-state until 2030.
In an announcement last October, the Genting group had indicated it might open a Las Vegas casino resort in 2020. Resorts World Las Vegas has been described as a “multibillion-dollar integrated resort” but a budget has not been disclosed. Investment analysts have previously mentioned a US$4-billion price tag.
Fitch noted in its Tuesday memo regarding Genting Bhd: “The company is confident of the earnings potential of its investments, while we think actual returns could be lower than expected due to competition and other pressures.”
The Genting group also has its sights on gaining a casino licence in Japan, where a project might involve a multibillion-U.S. dollar investment.
Fitch’s key assumptions in its rating case for Genting Bhd included: flat revenue growth in 2019, compared to 4 percent growth in 2018; and 5 percent revenue growth in 2020, “driven by higher gaming wins in Singapore and visitor growth in Malaysia following the redevelopment of Resorts World Genting”.
The ratings house also assumed in making its case, a margin on earnings before interest, taxation, depreciation, amortisation and restructuring or rent (EBITDAR) “of around 38 percent over 2019 to 2020, supported by “stable Singapore operations and the rise in Malaysian gaming tax being offset by higher non-gaming revenue and cost cuts”.
Fitch estimated that Genting Bhd’s dividends commitments – including those to non-controlling interests – would be approximately MYR2 billion annually over 2019 to 2020.
Key assumptions for the Resorts World Las Vegas unit included that it would complete construction of the property of that name in the Nevada gaming hub in 2020, and open it in 2021.
Fitch was modelling for that unit to see operations “stabilise in the third year after opening”, with debt/EBITDA and EBITDA/interest ratios improving to 6.0 times and 3.5 times, respectively, from 11.0 times and 2.0 times at the start of operations.
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