A loan of up to US$80 million offered to casino operator NagaCorp Ltd from the trust set up by its founder and controlling shareholder Chen Lip Keong, is a “credit positive”, says Moody’s Investors Service Inc, as it would address the 2024 maturity of a company bond.
But the ratings agency noted that NagaCorp, operator of the NagaWorld gaming complex (pictured, Naga 2) in Cambodia’s capital Phnom Penh, remained “exposed to refinancing risk” regarding generating “sufficient free cash flow to repay the 2024 notes”. That would in likelihood depend on a sustained recovery in earnings, and “low discretionary spending”, Moody’s said.
The unsecured loan is at 8.0-percent annual interest over two years. It would help NagaCorp – which has a long-life casino monopoly in Phnom Penh – in “refinancing and/or discharging”part of its outstanding US$472.2-million notes maturing in July 2024, the company had explained in a Tuesday filing.
Moody’s observed in a Thursday memo: “As of September 30, NagaCorp had US$298 million of cash and cash equivalents. Assuming the company maintains a working cash balance of US$40 million and fully draws down the US$80 million shareholder loan, it will need to generate free cash flow of US$135 million over the next three quarters to cover the bond maturity.”
The ratings institution said it expected NagaCorp’s earnings to improve over the next 12 months, with the help of “seasonal peaks” in Cambodia’s tourist arrivals seen typically in the first and fourth quarter of regular trading years.
Moody’s said it assumed NagaCorp will have been able to generate earnings before interest, taxation, depreciation and amortisation (EBITDA) of around US$350 million this year, and US$485 million in 2024, “but a slower-than-expected recovery would be likely to put pressure on NagaCorp’s liquidity”.
NagaCorp reported EBITDA of US$215.4 million for the first nine months of 2023, the company said in an October update to the Hong Kong bourse.
NagaCorp flagged in June that the completion of an addition to the NagaWorld complex, known as Naga 3, had been pushed back by four years, to September 2029.
Regarding Naga 3, Moody’s noted: “We expect it [NagaCorp] to spend around US$40 million on development capital… over the next 12 months, between October 2023 and September 2024. At the same time, we expect it will not pay cash dividends until it addresses its bond maturity. NagaCorp has not paid a cash dividend since 2021.”
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