GGRAsia – Genting US$1bln energy projects to hit leverage: Moody’s

Genting US$1bln energy projects to hit leverage: Moody’s

Jun 24, 2024 Newsdesk Latest News, Rest of Asia, Top of the deck

The nearly US$1.1-billion investment in energy-related projects by Genting Bhd, the Malaysia-listed parent of a group of casino businesses around the world, is “credit negative” because it will “weaken” the group’s “credit metrics over the next 12 to 18 months,” says Moody’s Ratings.

The investments in energy assets “underline Genting Bhd ambitions for growth and expansion, both within and outside its core leisure and hospitality business,” stated the institution.

Genting Bhd announced last week an aggregate investment of about US$1.03 billion – via some of its subsidiaries – to construct in Indonesia a floating facility for liquefied natural gas, with it scheduled to start operations by the third quarter of 2026.

The company said it intends to fund this and other smaller transactions with a mix of internally generated cash and debt.

Separately, the group also announced that an indirect subsidiary had reached an agreement to acquire a 49-percent stake in a Chinese firm in that country’s energy sector, for about US$14 million. Genting Bhd has estimated an additional investment of approximately US$46 million, “to target commercial operation in 2025”.

The purchase price and equity investment “will be fully funded by internally generated funds,” stated the Malaysian conglomerate.

Moody’s said in a Friday memo: “Assuming these transactions are fully debt-funded, we expect leverage to weaken to around 3.9 times over the next 12 to 18 months, from our previous expectation of around 3.6 times to 3.7 times.”

It added: “This leaves less headroom under Genting Bhd’s leverage with its downgrade threshold at 4.0 times.”

Resorts World Sentosa, a gaming resort in Singapore run by Genting Singapore Ltd, and Resorts World Genting, operated by Genting Malaysia Bhd, are said to be the group’s main assets.

Genting Malaysia also runs casinos in the United States, the Bahamas, the United Kingdom, and Egypt.

Moody’s noted that the Genting group “has substantial capital spending commitments and plans, particularly for its leisure and hospitality business”.

“Through its subsidiary Genting Singapore, Genting Bhd is in the process of expanding its Singapore integrated resort for a total project cost of SGD6.8 billion (US$5 billion),” observed the rating agency.

It added: “Additionally, Genting Bhd’s indirect subsidiary Genting New York LLC is bidding for one of three downstate New York gaming licences. The company has unveiled an investment plan of up to US$5 billion if it secures a licence.”

Moody’s said the expected “significant increase in debt to fund Genting Bhd’s capital spending and investments will further weaken leverage and indicates an aggressive financial policy, thereby exerting pressure on the company’s rating”.

Maybank Investment Bank Bhd said in a recent note that Genting Bhd had an “auspicious start” to 2024, driven by “luck” at its gaming operations run by Genting Malaysia and Genting Singapore.

The parent company reported first-quarter net profit of MYR998.6 million (US$212.3 million), on revenue that grew by 27.6 percent year-on-year, to MYR7.43 billion.

Despite the first-quarter improvement, Maybank lowered its 2024 estimates for earnings per share for the parent company by circa 12 percent. It said the decision to lower the estimates took into account, among other factors, VIP win rates of 3.0 percent at Resorts World Sentosa, as well as higher staff costs and slightly higher reinvestment rates by Genting Singapore.