Published on 17 Apr 2020.
With the shutdown of international borders and sweeping restrictions on movements across the globe, it is unsurprising that the gaming sector is bearing the full brunt of the repercussions from the COVID-19 pandemic. Genting Berhad (Genting, rated AAA/Stable/P1) and Genting Malaysia Berhad (GenM, rated AAA/Stable/P1) are among the most significantly affected companies in RAM Ratings’ rated portfolio.
Our assessment of the impact of COVID-19 on both Genting and GenM mainly hinges on our assumptions on how soon the pandemic can be brought under control. At this juncture, our base case assumes severe declines in revenue throughout Genting’s operations in Singapore, Malaysia, the US and the UK until sometime in 3Q 2020. Broadly, we assume a U-shaped recovery, with the impact on earnings only beginning to ease towards the end of this year before gradually normalising in 2021. Given the significant uncertainties regarding the length and severity of the pandemic, as well as risk of subsequent waves of infection, our assessment could change as the situation evolves.
We expect Genting’s full-year operating profit before depreciation, interest and tax (OPBDIT) to be significantly affected in fiscal 2020. The expected slump in earnings conincides with sizeable capex. The construction cycle of Resorts World Las Vegas (RWLV) is anticipated to peak this year, with its targeted opening unchanged at mid-2021. While part of the capex for the expansion of Resorts World Sentosa (RWS) and the new outdoor theme park in Resorts World Genting (RWG) may be postponed, the Group’s capex and investment outlays are still projected to climb up to around RM9.5 bil in fiscal 2020 (fiscal 2019: RM8.8 bil).
With its significantly poorer operating profit and hefty capex, Genting’s net gearing ratio is envisaged to deteriorate to 0.22 times as at end-December 2020 (end-December 2019: 0.06 times), albeit still within its rating threshold of 0.25 times. At the same time, its funds from operations net debt cover (net FFODC) is expected to thin to 0.15 times (end-FY Dec 2019: 2.01 times), i.e. beyond its rating trigger of 0.40 times.
We anticipate Genting’s operations to recover by fiscal 2021, although earnings are envisaged to remain lower than 2019’s levels. Potentially slower-than-usual return of patrons is also likely given lingering fears of the coronavirus while the deteriorating economic outlook on its key markets could impede the recovery of patron visits and gaming revenue - even after the easing of travel and movement restrictions.
Nonetheless, we expect the abovementioned effects to be partly mitigated by the new attractions at its Malaysian and New York operations. RWG’s domestic-based clientele may also support a quicker recovery of its operations. Moreover, the opening of RWLV should support the Group’s operating performance to some extent. In line with the anticipated recovery in 2021, Genting’s net FFODC is envisaged to be restored to above our rating threshold next year. That said, the Group has limited rating headroom for any deviation from our current expectations.
Meanwhile, Genting has entered this challenging period with superior liquidity. As at end-December 2019, it held RM30.9 bil of cash or cash equivalents as well as liquid money-market instruments against RM2.9 bil of short-term debts. Even after sensitivities incorporating weaker cashflow along with heftier capex, plus all its other near-term funding requirements, the Group would still hold more than RM10 bil of liquid assets.
Elsewhere, we expect the effects of COVID-19 to strain GenM’s already weakened credit metrics amid its increasing debt load and a series of credit-negative developments in recent years. These include the acquisition of US-based, loss-making Empire Resorts, Inc in late 2019, previous delays in the opening of the RWG outdoor theme park, and the hike in gaming duties effective 1 January 2019. GenM’s credit metrics are expected to remain weak for its ratings even in fiscal 2021, with a net gearing ratio of about 0.45 times and a net FFODC of around 0.30 times. Given GenM’s very close relationship with its parent, however, the former’s ratings are aligned with those of its parent.
There may be negative pressure on Genting’s ratings (and, indirectly, GenM’s) if the severity of COVID-19’s impact on the Group exceeds our expectations, thus delaying the recovery of its credit metrics. We expect greater visibility on the potential consequences of recent developments when we conduct our annual review of the Group, which is envisaged to be completed in July.
Corporate credit ratings
RM2.0 bil MTN Programme (2012/2032)
(Issued by Genting Capital Berhad)
RM1.6 bil MTN Programme (2009/2024)
(Issued by GB Services Berhad)
RM10 bil MTN Programme
(Issued by Genting RMTN Berhad)
Genting Malaysia Berhad
Corporate credit ratings - National scale
RM5 bil MTN Programme (2015/2035)
(Issued by GENM Capital Berhad)
RM3 bil MTN Programme (2018/2038)
(Issued by GENM Capital Berhad)
(1) The debt programmes under Genting Capital Berhad, GB Services Berhad and Genting RMTN Berhad are backed by full, unconditional and irrevocable corporate guarantees from Genting.
(2) The debt programmes under GENM Capital Berhad are backed by full, unconditional and irrevocable corporate guarantees from GenM.
(603) 3385 2509
(603) 3385 2577
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad
Ratings on Genting Berhad