Fitch Affirms Genting Bhd and Genting Singapore at 'A-'/Stable

Fri Jun 20, 2014 2:10am EDT

(The following statement was released by the rating agency) SINGAPORE, June 20 (Fitch) Fitch Ratings has affirmed Malaysia-based gaming conglomerate Genting Berhad's (Genting) Long-Term Foreign Currency Issuer Default Rating (IDR) and senior unsecured rating at 'A-'. Fitch has also affirmed Genting's 52%-owned subsidiary, Genting Singapore PLC's (GENS) Long-Term Foreign and Local Currency IDRs at 'A-' and its SGD perpetual capital securities at 'BBB'. The Outlooks for Genting and GENS are Stable. Genting's ratings reflect its continued strong market position in the Malaysian and Singaporean gaming markets, its robust and improving operating margins, and low net financial leverage. Genting's overall business risk is lowered by its industry diversification into the high cash generating plantations and power sectors. GENS's ratings are equalised with Genting's due to strong strategic and operational ties between the two entities, with GENS contributing about 48% of Genting's consolidated EBITDA in 2013. Sharing of brands and a history of providing financial support are also key attributes for the equalisation of the ratings. KEY RATING DRIVERS Stable credit profile: Genting's 'A-' IDR is the highest among Fitch-rated global gaming companies, which reflects its strong and highly profitable gaming operations together with its strong balance sheet. Following a soft FY13 performance compared with FY12, Genting reported strong first quarter 2014 results, with higher earnings from most divisions. Genting's low net leverage, with negative net external debt on a consolidated basis which was negative 0.21x in FY13, supports its rating. While this will rise as the group embarks on new projects, Fitch expects its credit metrics to remain at levels commensurate with its rating. Overseas Expansion Intensifies: In Q114, GENS entered into a 50:50 JV with Anhui-based property developer, Landing International Development Limited (LIDL), to develop a USD2.2bn (SGD2.79bn) integrated resort (IR) at Jeju in South Korea. GENS has also incorporated eight subsidiaries in Japan, each with a paid-up capital of JPY2, anticipating the passage of the casino regulation bill. While the Jeju IR project is modest in relation to GENS' scale of operations, the simultaneous execution of other large scale projects by the group like in Las Vegas and potentially Japan could strain Genting's financial profile. However we note that the group has a history of pursuing expansion prudently. High Minority-adjusted Gross Leverage: Genting's financial leverage on a consolidated basis is not directly comparable with that of its peers, given a high level of minority interests in almost all of its key operating subsidiaries. However, even after adjusting for this - by deducting minority interests as operating EBITDAR - financial leverage as measured by the ratio of gross adjusted debt to operating EBITDAR less minority interest was high at 4.08x in FY13 (FY12: 3.71x). While this in isolation is high relative to Genting's rating, the resultant risk is mitigated by Genting's strong cash balances. Limited structural subordination: With most of the group borrowing at the operating subsidiary level, and given that the holding company earns a stable and recurring stream of revenues in the form of license and management fees and dividends from its subsidiaries, the holding company's relatively low interest in its subsidiaries in not an immediate concern. RATING SENSITIVITIES Genting Negative: Future developments that may, individually or collectively, lead to negative rating action on Genting's ratings include -Failure to moderate financial leverage as measured by the ratio of gross adjusted debt to operating EBITDAR less minority interest to less than 2.5x and to maintain strong cash balance, and -Net financial leverage as measured by the ratio of net adjusted debt to operating EBITDAR less minority interest being sustained at less than 1.0x Upside potential to the ratings is limited by the capital intensity of the gaming business. GENS Any weakening of operational and strategic ties between GENS and Genting will also result in GENS's rating being notched down from its parent's rating. Fitch assesses GENS's standalone rating at 'BBB' - despite its operational and financial metrics being in line with Genting's consolidated numbers - primarily due to its single-market exposure. Contact: Primary Analyst Nandini Vijayaraghavan, CFA Director +65 6796 7213 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-03/04/05 Suntec Tower Four Singapore 038986 Secondary Analyst Hasira De Silva, CFA Director +65 6796 7227 Committee Chairperson 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. Applicable criteria, 'Corporate Rating Methodology', dated 28 May 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here 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'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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