Moody’s Investors Service Inc says that KCC Corp’s investment in a potential South Korean casino venture would – if a gaming permit were awarded – be a credit negative for the industrial firm.
“KCC’s investment in the casino business, if it materialises, will be credit negative, given the casino project’s uncertainty and execution risk,” said Wan Hee Yoo, a Moody’s vice president and senior analyst, in a note issued on Tuesday.
The note added however that the announced investment in an entity pursuing such a project would “not immediately affect” KCC Corp’s Baa2 issuer rating and stable outlook, “given the uncertainty regarding government approval”.
KCC Corp on Friday announced it had acquired a 24.5-percent stake in Inspire Integrated Resort Co Ltd – a South Korean subsidiary of U.S. regional tribal casino operator Mohegan Tribal Gaming Authority, known as Mohegan Sun – for a total consideration of KRW203.8 billion (US$176 million).
Mohegan Sun confirmed a fortnight ago that it would submit a proposal to build a so-called integrated resort (pictured in a rendering) – that would include a foreigners-only casino – in South Korea’s Incheon Free Economic Zone. The deadline for submissions under a request for proposal process, being held by South Korea’s Ministry of Culture, Sports and Tourism, is this Friday, November 27.
KCC Corp provides products for the construction, automotive, electronics, consumer and industrial appliance, and fast-moving consumer goods industries in South Korea and internationally. Moody’s described the firm as South Korea’s leading manufacturer of industrial paints.
Bobby Soper, president of Mohegan Sun, told GGRAsia that the company is “excited” to team up with KCC, adding that the South Korean partner can “complement the project with their expertise as a top-notch supplier and contractor”.
“The investment in the casino business, if it materialises on a debt-funded basis, will pressure KCC’s financial profile,” stated Moody’s Tuesday note.
The ratings house said KCC Corp’s financial profile “weakened” in 2015 owing to its “sizable” capital expenditure as well as an approximately KRW700-billion investment it made to acquire stakes in Samsung C&T Corp in June.
“Absent any deleveraging activities, Moody’s expects the company’s adjusted debt to EBITDA [earnings before interest, taxation, depreciation and amortisation] to rise to about 3.5 times to 3.7 times by 2016 from 2.4 times in 2014 and retained cash flow/net debt to be around 30 percent compared with the previous net cash position,” said the financial institution.
Those concerns were “partly mitigated” by KCC Corp’s ownership of “large and liquid” non-core equity stakes, which were worth about KRW3.3 trillion as of November 23, said Moody’s. “Such holdings provide a considerable cushion against adverse developments at its operations,” added the ratings agency.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China