Published on 19 Aug 2021.
RAM Ratings has reaffirmed Genting Berhad’s (Genting or the Group) AA1 ratings despite its slower recovery with the resurgence of COVID-19 cases in Malaysia. This reflects our expectation of a swift rebound in the Group’s performance from 2H 2022, which will drive its credit metrics back to levels corresponding with its ratings by FY Dec 2023. Recovery hinges on our assumption that the Group’s key markets of Malaysia and Singapore will achieve widespread immunisation by year-end, paving the way for material relaxation of mobility restrictions.
The continued negative rating outlook is indicative of our view that Genting’s credit metrics will stay under stress in the next few quarters, with limited headroom for further setbacks. The better vaccination outlook across all markets and partial reopening of the Group’s operations diminish pandemic-related uncertainties, but downside risks persist. The outlook may be revised to stable when the business environment for Genting’s group-wide operations regains some form of normalcy, aiding the recovery of its credit metrics.
New waves of infection in Malaysia and travel restrictions since early 2021 will delay Genting’s earnings recovery by another year. We expect Resorts World Genting (RWG) to stay closed through most of this year, resulting in an operating loss of close to RM500 mil (FY Dec 2019: RM2.7 bil profit; FY Dec 2020: RM848 mil profit). That said, we expect its operations to quickly pick up when the pandemic abates, as with RWG when it operated without travel curbs in 3Q 2020. Strong pent-up demand and RWG’s new outdoor theme park will help feed recovery in FY Dec 2022. Genting’s businesses in New York and the UK reopened in September 2020 and May 2021, respectively, seeing operations return to, or close to, pre-pandemic levels in recent months.
While Singapore’s international borders are still largely closed, Resorts World Sentosa’s business has benefited from domestic demand, partly spurred by government travel incentives. This should provide some support to Singapore operations until the country reopens its borders. We expect Resorts World Las Vegas (RWLV) to generate close to USD200 mil in its first full year of operations in FY Dec 2022, which will contribute to the Group’s financial recovery in the next two years.
Genting’s credit metrics, although largely within our expectation in fiscal 2020, will be eroded by a marked decline in cashflows in fiscal 2021 and still-aggressive dividend distributions. Based on dividends declared to date, we have assumed a payout of RM1.5 bil in FY Dec 2021 and FY Dec 2022 (FY Dec 2020: RM2.0 bil). While lower y-o-y, the sums are still substantial, given the Group’s weak financial performance in the near term. Capital expenditure (capex) will rise to around RM10 bil in fiscal 2021 (fiscal 2020: RM7.3 bil) before easing to RM3 bil-4 bil in the next two years. The additional spend mainly relates to remaining RWLV capex and the land cost for RWS’s expansion.
We expect Genting’s net debt levels to rise significantly to around RM24 bil this year (end-December 2020: RM12.0 bil). Consequently, net gearing is projected to marginally exceed the 0.45 times rating threshold before easing to below this level in FY Dec 2023 (end-December 2020: 0.22 times). The heavier debt load will cause funds from operations net debt coverage to weaken to sub-0.10 times in FY Dec 2021 (FY Dec 2020: 0.13 times), albeit improving to around 0.25 times in FY Dec 2022 and 0.35 times in FY Dec 2023.
Genting’s solid market position afforded by geographically diversified gaming businesses – including a monopolistic position in Malaysia and a duopoly in Singapore – remains a rating strength. RWLV, which recently kicked off operations, serves as a new avenue to grow and diversify earnings. Genting’s strong cash-generative business model and still-solid liquidity profile further support the ratings.
Genting Malaysia Berhad (GenM), in view of its smaller balance sheet and higher exposure to domestic operations (compared to the more diversified Genting group), will see its credit metrics weighed down more significantly by missed earnings from RWG. That said, GenM’s ratings are aligned with the Group’s, considering the close relationship of the two entities and anticipated parental support from Genting when required.
Corporate credit ratings
RM2 bil MTN Programme (2012/2032) (Issued by Genting Capital Berhad)
RM10 bil MTN Programme (2019/2119) (Issued by Genting RMTN Berhad)
Genting Malaysia Berhad
RM5 bil MTN Programme (2015/2035) (Issued by GENM Capital Berhad)
RM3 bil MTN Programme (2018/2038) (Issued by GENM Capital Berhad)
(603) 3385 2509
Thong Mun Wai
(603) 3385 2522
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Ratings on Genting Berhad