The FINANCIAL -- Fitch ratings says Malaysia-based Genting Berhad's (Genting) purchase of
Boyd Gaming's 87-acre Echelon site at Las Vegas does not have an
immediate impact on its ratings.
Genting's Long-Term Issuer Default Rating is 'A-' with Stable Outlook.
The ratings have incorporated the possibility of global expansion via entry into new gaming markets, which carries material project execution and funding risk. However, the impact to the overall credit profile will only become apparent once there is greater clarity regarding the scale and timing of the full project, as well as the specific funding structure.
As Fitch ratings said, the proposed gaming facility, which will bring diversification to Genting and is subject to regulatory approvals and could in Fitch's view open by 2016. Its initial USD350m investment is small in relation to its scale (FY12 revenues totalled MYR17.25bn, approximately USD5.57bn) and liquidity (cash of MYR21.2bn or USD6.8bn). There is no clarity yet regarding the mode of funding this project, i.e., how much debt will be raised to fund this project, and joint venture partners, if any.
Genting has the financial wherewithal and expertise to undertake a project of this scale and nature. The group operates Resorts World Casino New York City, owns substantial land bank in downtown Miami and plans to develop an integrated casino resort, if approved by the Florida legislature. The Las Vegas market, while intensely competitive, is a destination for Asian premium and VIP players and therefore provides marketing synergies with its existing operations in the US as well as southeast Asia.
While Genting Bhd's and Genting Singapore Plc's (GENS, A-/Stable) recently published FY12 results were marginally below Fitch's expectations, their financial metrics remain appropriate for their rating level. Following sluggish business volumes in the premium players segment at its Singapore integrated casino resort, Resorts World Sentosa (RWS), during the first three quarters of 2012, business volumes improved in Q412 and occupancy rate at the RWS hotels was high at 91%.
GENS incurred one-time SGD28.26m (approximately USD22.7m) pre-opening expenses as part of the inauguration of its Marine Life Park (MLP). With the improvement of the premium players' business volumes, hotel occupancy rates holding up and completion of MLP, Fitch expects GENS's operating margins to improve in 2013.
Genting's rating also reflects its monopoly position in the Malaysian gaming market, strong market position in the duopolistic Singapore gaming market, a moderately diversified business profile through its power, plantation and oil businesses and its net cash position.
Genting's FY12 results were boosted by a MYR1.89bn (approximately USD610m) one-time gain from the sale of its Kuala Langat power plant to 1Malaysia Development Berhad. If the impact of the one-time gains in FY11 and FY12 were excluded, FY12 net income from continuing operations at MYR3.72bn was 24.2% lower than the corresponding FY11 figure of MYR4.91bn. This was mainly due to weaker performance of the premium segment in Genting's RWS, and its plantation business on account of the lower crude palm oil prices in 2012. Other contributing factors to Genting's 2012 performance were the write-off of MYR326m assets and MYR397.4m impairment losses reported. The latter predominantly consisted of MYR178.7m impairment loss on account of an investment made in an associate, MYR102.2m write-down of certain UK casino licenses, and a MYR87.5m impairment loss relating to Omni Center, Miami, Florida.