Moody’s affirms NagaCorp ahead of US$3.5bln Naga3 spend

Apr 24, 2019 Newsdesk Latest News, Rest of Asia, Top of the deck  

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Moody’s Investors Service says the finances of NagaCorp Ltd, an investor in Asian casinos, are likely to remain robust during the next 12 to 18 months.

Moody’s stated that should be the case even though the gaming firm plans to borrow money from its chief executive in order to pursue a US$3.5-billion expansion of its flagship NagaWorld complex (pictured) in the Cambodian capital Phnom Penh.

Following Moody’s affirmation of NagaCorp’s credit rating last week, the ratings agency offered a written opinion on NagaCorp. This month Moody’s affirmed its “B1″ corporate family rating for NagaCorp and its “B1″ senior unsecured rating for NagaCorp bonds denominated in United States dollars, giving both ratings a “stable” outlook.

Hong Kong-listed NagaCorp has a long and exclusive licence to operate casinos in Phnom Penh and its environs. It runs two establishments there, Naga 1 and Naga 2, now known collectively as NagaWorld, and has just announced plans for a third, called Naga 3. The company has previously said Naga 3 will add 4,720 hotel rooms to the complex and a 12-level “multi-entertainment podium”.

“Strong operating performance supports solid financial metrics over the next 12 to 18 months,” said the Moody’s statement released on April 17.

The note added that NagaCorp achieved 55-percent growth in gaming revenue to US$1.4 billion last year, and 60-percent growth in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to US$525 million.

The company’s VIP gaming business is said to have driven growth. In the past year, Moody’s noted the value of the VIP business had grown by 71 percent year-on-year as the Naga 2 facility ramped up and reached its first full year of operation. Gaming margins at NagaCorp are said to be 45 percent.

“Growth in the VIP gaming business continues to be supported by competitive incentives or commissions to gaming promoters,” noted Moody’s statement.

Moody’s added that in the mass-market gaming segment, NagaCorp business continued to be driven by the company’s tie-ups with China International Travel Services Ltd, China Duty Free Group and Bassaka Air, which were likely to increase the number of visitors to Cambodia and NagaWorld.

“We expect revenue and EBITDA growth to moderate owing to [an] increase in gaming taxes and a reduction in consumer discretionary spending over concerns of a slowdown in economic growth in Asia-Pacific,” Moody’s stated.

“Nonetheless, we expect NagaCorp to maintain solid financial metrics. Leverage, as measured by adjusted debt to EBITDA, will stay at 0.7 times in 2019 and 0.6 times in 2020, as compared to 0.7 times in 2018. Retained cash flow to debt will weaken to around 65 percent in 2019 and 78 percent in 2020 from 90 percent over the same period, owing to higher dividend payouts.”

This month the company confirmed that NagaCorp Chief Executive Chen Lip Keong would come up with part of the US$3.5 billion needed for Naga 3, not counting land costs.

Moody’s said its rating for NagaCorp was unlikely to be upgraded since it was constrained to one notch above Cambodia’s sovereign rating. Moody’s stated there was “a low likelihood of the company being affected in the event of a weakening in Cambodia’s economic fundamentals”.

“The company demonstrates a degree of insulation from domestic conditions because it generates most of its revenue from tourists and does not rely on local banks or the capital markets for funding,” the ratings agency said.

NagaCorp is incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange in 2006. The company is developing a second casino resort in Vladivostok, Russia. The promoter has said building work might be completed this year.

NagaCorp was founded by Chen Lip Keong. He is the chief executive and biggest shareholder with about two-thirds of the company’s stock, Moody’s estimated.

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