October 10, 2017 / 2:18 AM / 9 months ago

Fitch: Genting to Maintain 'A-' Rating Following Tap Issue

(The following statement was released by the rating agency) SINGAPORE, October 09 (Fitch) The ratings of Malaysia-based gaming conglomerate, Genting Berhad (A-/Stable), will not be affected by a further planned note issue by its indirectly held funding vehicle, GOHL Capital Limited, says Fitch Ratings. The issue will be consolidated into GOHL Capital Limited's existing USD1 billion 4.25% note due 2027 rated at 'A-', with the proceeds mainly used to refinance Genting's bank debt. Genting owns GOHL Capital Limited through its wholly owned subsidiary, Genting Overseas Holdings Limited (GOHL, A-/Stable), which has guaranteed the notes. The proposed and existing notes are rated at the same level as GOHL's senior unsecured rating as they represent its direct, unconditional, unsecured and unsubordinated obligations. Genting holds 52.8% of its key asset, Genting Singapore PLC (GENS, A-/Stable), through GOHL. GOHL's rating is equalised with that of Genting due to strong operational and strategic ties, in line with Fitch's Parent and Subsidiary Rating Linkage criteria. Genting's ratings reflect its monopoly gaming-market position in Malaysia and robust share of around 35% in Singapore's duopolistic market. Its leisure and hospitality (L&H) business in these countries together accounts for over 80% of consolidated EBITDA. The gaming industry in both countries is subject to close regulatory oversight and the resultant barriers to entry impart a degree of stability to Genting's cash flow across the business cycle. It also enjoys some diversification benefits from L&H assets in the UK, US and Bahamas as well as other businesses, such as oil-palm plantations, power, property and oil and gas. Genting has a conservative capital structure in addition to a robust operating profile. GENS, which contributed around 50% of Genting's consolidated 1H17 EBITDA, has seen margins rebound since 2H16 due to lower impairment of receivables as a result of tighter credit policies and a remodelled commission structure, in addition to an overall cost-management focus. GENS' annualised 1H17 EBITDA margin was around 14pp higher than in 2016 and its annualised revenue was around 6% higher. This improved its 1H17 annualised EBITDA by almost 50% compared with 2016, highlighting Singapore's better gaming-market conditions. A sustained increase in visitor arrivals in Singapore, which saw 4% yoy growth in the January-July 2017 period (2016: 8%), also bodes well for GENS as it focuses on expanding its regional premium mass business and reinvests in its facilities. GENS has been affected by the loss of market share to sole rival, Marina Bay Sands Pte. Ltd. (MBS, BBB-/Stable), due to MBS's locational advantage given its proximity to Singapore's central business district. However, we do not expect competitive pressure on GENS to increase in the near term as additional licenses in Singapore are improbable, despite the expiry of moratorium on such licenses in 2017, given government concerns over problem gambling. In addition, while we believe GENS, and the regional market generally, is on a recovery path, returns on investment in a new casino in Singapore would be inadequate due to competition. We expect higher earnings at Genting's Malaysian L&H and oil-palm plantation businesses, which together contributed around 40% of its consolidated EBITDA in 1H17. Resorts World Genting (RWG) has opened several new facilities as part of its 10-year MYR10 billion redevelopment masterplan launched in 2013. Other key attractions, including a new theme park and the remaining floors at its new mall and casino, are scheduled to open progressively from 2017. We expect these developments to result in a sustained increase in visitor arrivals over the next three years, from 20 million in 2016, and drive revenue growth for Genting's L&H business. The plantation business should benefit from a rebound in yields on fresh-fruit bunches in 2017 due to better weather conditions. We expect earnings to be supported over the longer term by a sustained yield improvement, as Genting's Indonesian oil-palm acreage matures, and healthy palm-oil prices. We expect Genting's consolidated capex to increase over the next three years to an average of around MYR7 billion per year, against the MYR4 billion spent in 2016. Genting is investing in its Resorts World Las Vegas project and expects full-scale construction to commence by end-2017, with opening targeted for 2020. This is in addition to its continued investment in RWG, of which around MYR4 billion has been spent up to 2016. Our capex estimates do not factor in potential investment by GENS in Japan due to significant uncertainties. Genting was in a net cash position as of end-2016, which we expect to turn into a net debt position in the next three years due to higher capex. However, leverage should remain low, with net adjusted debt/operating EBITDAR less net income attributable to minorities at below 0.5x for 2019. The group's management has a record of prudent capital management, evidenced by GENS' sale of its stake in a South Korean venture in late 2016 to bolster cash reserves. Our estimates factor in likely equity inflows from the exercise of Genting's warrants, which expire in December 2018. Contact: Akash Gupta Associate Director +65 6796 7242 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Hasira De Silva Director +65 6796 7240 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. 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