Standard & Poor’s Global Ratings revised on Wednesday its outlook on Malaysia’s Genting Bhd and on its wholly-owned unit Resorts World Las Vegas LLC, to “negative” from “stable”. Genting Bhd is parent of the casino and plantations network of businesses founded by the Lim family.
The credit assessment agency said it believed the Covid-19 outbreak would “hit the Genting group hard in 2020,” with such impact “to be felt hardest” in the quarter ending March. “We expect a drastic drop in visitation to gaming properties, and those owned by Genting group are no exception,” it stated.
In terms specifically of the Genting parent’s credit profile, Standard & Poor’s said: “The negative outlook reflects our expectation that Genting will breach our downgrade trigger for the next 12 to 24 months, but its credit profile will recover quickly such that debt/EBITDA [earnings before interest, taxation, depreciation and amortisation] falls below 2.0 times by 2022.”
The ratings agency has at the same time affirmed the “BBB+” long-term issuer credit rating on Genting, according to a Wednesday statement.
The Covid-19 virus outbreak – recorded first in mainland China – has now been declared a pandemic, with infections across the Asia-Pacific region and the globe.
“We revised the outlook on Genting to negative to reflect our view that Genting’s revenue and EBITDA will drop by 20 percent to 25 percent and 25 percent to 30 percent respectively in 2020 because of the ongoing Covid-19 outbreak,” stated the ratings agency.
The Genting group has a monopoly in casino gaming in Malaysia – via Genting Malaysia Bhd, which operates Resorts World Genting (pictured in a file photo) – and is also operator in Singapore’s casino gaming duopoly, via Genting Singapore Ltd.
“In Singapore, we expect revenue to decline by 30 percent to 40 percent in 2020, given our belief that the bulk of it is from customers in North Asia,” noted Standard & Poor’s. “In Malaysia, while we acknowledge that day trippers make up about 75 percent of visitors, we forecast weak consumer sentiment amid the virus fear to lower revenue by 20 percent to 25 percent in 2020.”
The Genting group is also developing the US$4.3-billion Resorts World Las Vegas casino resort in Nevada, United States. That property is expected to open in the summer of 2021, according to previous company information.
The ratings agency noted in relation to disruption to Genting group’s business: “This comes at a time when we forecast near-term capital expenditure (capex) to peak in 2020, with Resorts World Las Vegas set to open in the summer of 2021 in the U.S., and our expectation that Genting Singapore will start its SGD4.5 billion [US$3.2 billion] expansion plan.”
In Wednesday’s statement, Standard & Poor’s said it expected Genting Bhd’s credit profile “to improve materially from 2022,” after the opening of the Las Vegas property.
“With the addition of Resorts World Las Vegas from 2021, we forecast revenue and EBITDA to reach record highs in 2022, and Genting’s credit profile to improve materially such that its debt-to-EBITDA ratio will fall below 2.0 times and ratio of funds from operations to debt will stay above 45 percent sustainably thereafter,” said the ratings agency.
The institution said additionally that it expected Resorts World Las Vegas to become a “meaningful earnings contributor” to the Genting group. “When completed, it will be the first new asset to open in Las Vegas in 10 years. Resorts World Las Vegas can benefit from being associated with a known brand name, and can also potentially leverage on partnerships with global hotel brands,” it stated.
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”Genting Malaysia’s revenue rebound has been slower than our expectations, and the impact on leverage has been compounded by Empire’s weak metrics”
Akash Gupta, Shiv Kapoor and Hasira De Silva
Analysts at Fitch Ratings