Moody’s downgrades NagaCorp, warns of financing risk

Oct 13, 2022 Newsdesk Latest News, Rest of Asia, Top of the deck  

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Moody’s Investors Service has downgraded the corporate family rating of Cambodian casino operator NagaCorp Ltd to ‘B2′ from ‘B1′, according to a Wednesday memo. Both ratings are considered non-investment grade.

The credit ratings agency said it had also downgraded the senior unsecured rating of NagaCorp’s U.S. dollar bond to ‘B2′ from ‘B1′. The bond is guaranteed by operating subsidiaries of NagaCorp.

Moody’s added that its rating outlook for the casino operator remained ‘negative’.

NagaCorp has a long-life monopoly licence for casino operations in the Cambodian capital Phnom Penh, where it runs the NagaWorld complex (pictured).

“The downgrade reflects NagaCorp’s slower-than-expected operational recovery such that the company will likely require external financing to repay its outstanding US$545 million bond maturing in July 2024,” said Moody’s analyst Yu Sheng Tay, quoted in Wednesday’s memo.

The analyst added: “The refinancing risk is exacerbated by tight funding conditions in the current economic environment and limited sources of liquidity for the company.”

NagaCorp had announced in June last year it was to issue 7.95-percent senior notes in the aggregate principal amount of US$200 million, with a July 6, 2024 maturity.

The notes, which are not convertible into shares, were to be consolidated and form the same series as the US$350-million notes issued in 2020.

The casino operator announced in August it had repurchased on the open market a small portion – involving an aggregate principal of US$1.6 million – of the senior notes. The company also repurchased part of its 2024 senior notes in September and early October, with the combined exercises involving an aggregate amount of just above US$5.2 million.

Moody’s said in its latest memo it viewed NagaCorp’s “concentrated debt structure and reliance on external funding” has having resulted in “heightened refinancing risks”. At the same time, NagaCorp had “limited sources of liquidity given its lack of bank facilities and divestible non-core assets,” it added.

While NagaCorp was expected to generate “sufficient operating cash flow to meet its cash needs through June 2024”, the casino operator would “likely require external financing” to repay its U.S.-dollar bond, said the institution.

Moody’s forecast NagaCorp would generate earnings before interest, taxation, depreciation and amortisation (EBITDA) of around US$252 million in 2022, followed by EBITDA of US$352 million in 2023. That compared with a result of US$16 million last year.

“The improvement is supported by the easing of pandemic-related restrictions in Cambodia, which has resulted in a gradual recovery in the country’s tourism sector,” said Moody’s.

Nonetheless, and according to the ratings agency forecast, NagaCorp’s earnings in 2022 and 2023 would remain “well below” the levels of 2019, when NagaCorp reported net profit of about US$521.3 million.

“The slower recovery is attributed to increasing regulatory scrutiny and clampdown on gaming promoters, which drove a significant portion of the revenues for NagaCorp historically,” said Moody’s.

NagaCorp’s nine-month 2022 EBITDA were US$183.2 million, versus negative EBITDA of US$17.4 million for the prior-year period, the company announced earlier this month.

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