Fitch: Jeju Project to Moderately Diversify Genting Singapore's Business

Tue Feb 25, 2014 7:52pm EST

(The following statement was released by the rating agency) SINGAPORE, February 25 (Fitch) Fitch Ratings says that Genting Singapore Plc's (GENS; A-/Stable) proposed joint development of an integrated resort (IR) at Jeju in South Korea will moderately diversify its geographic footprint. Fitch estimates that the proposed Jeju IR will account for about 10% of GENS' total assets on a pro forma basis on completion of the project in 2017-2018 and will reduce GENS' single property concentration associated with Resorts World Sentosa (RWS) located in Singapore. GENS plans to develop the Jeju resort at an estimated project cost of USD2.2bn (SGD2.79bn) in a joint venture with Landing International Development Limited (LIDL), a leading property developer based in Anhui Province, China. Tourists are the target market for the new IR, with the casino to be accessible only to foreigners. The IR will include hotels, residential apartments and villas, a theme park, gaming and other leisure facilities. Fitch views GENS modeling the Jeju IR after RWS positively as this would translate into a more diversified (gaming, leisure and hospitality revenues) and stable earnings stream. As noted in Fitch's recent outlook report for the Asia-Pacific gaming industry, with the trend of greater liberalization of gaming regulations, casino operators are looking at a number of new markets to meet the demand. Large-scale casino resorts are currently under construction in the Philippines and Vietnam, and Paradise Co. announced in October 2013 that it was building a USD1.7bn casino resort in Incheon, near Seoul's international airport, that is scheduled for completion in 2017. Fitch believes that the region's gaming market has ample space for additional projects. This investment will also add geographic diversity to GENS' parent, Genting Bhd's (Genting; A-Stable) operations. Genting has a 52% stake in GENS and total assets of MYR50.67bn (approximately USD15.38bn) as of 30 September 2013. Genting's gaming, power, plantation and property businesses span Malaysia (11% of total assets), Singapore (39.6%), UK, USA and Indonesia. On 7 February 2014, GENS announced that it has entered into a conditional shareholders' agreement with LIDL, which entails a SGD194.2m investment in Landing Jeju Development Company (LJDC), a wholly owned subsidiary of LIDL. The SGD194.2m investment comprises SGD97.1m each of equity and shareholder loans. LIDL has already invested SGD58.9m in equity in LJDC and is to invest SGD38.2m in additional equity and SGD97.1m in shareholder loans. On completion of these investments, LJDC will have paid-up capital and shareholder loans of SGD194.2m each. GENS and LIDL will each have a 50% stake in LJDC. In addition, Dynamic Sales Investments Limited, an indirect wholly owned subsidiary of GENS, has entered into a conditional subscription agreement to acquire 5% of the enlarged issued and paid-up share capital of LIDL for SGD39.8m. As of end-December 2013, GENS' unrestricted cash and available-for-sale investment portfolio stood at SGD3.63bn and SGD1.86bn respectively, which is ample to fund the above-mentioned investments. Moreover, GENS continued to be in a net cash position as of 31 December 2013. While the execution of this project in isolation is unlikely to impact Genting's credit profile, potential projects in Las Vegas, New York City and Miami in the US, and possibly Japan, if executed simultaneously, could stretch its credit profile. Genting too continued to be in a net cash position as of 30 September 2013. In 2013, GENS reported a 3% decline in revenue to SGD2.85bn. Notwithstanding the higher volume registered in the gaming business, the lower win percentage in the premium gaming business resulted in an 8% decline in 2013 gaming revenue. Non-gaming revenue grew by a robust 18% on the back of strong visitor arrivals. EBITDA margin continued to be robust at 42.7% in FY13, despite declining from 46.2% in FY12. For more information on the outlook for the Asia-Pacific gaming industry, please refer to "2014 Outlook: Asia-Pacific Gaming" dated 16 December 2013 on www.fitchratings.com. Contact: Nandini Vijayaraghavan, CFA Director +65 6796 7216 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec Tower Four Singapore 038986 Shahim Zubair, CFA Associate Director +65 67967227 Vicky Melbourne Senior Director +61 2 8256 0325 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. 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