Standard & Poor’s ups Genting Bhd’s long-term corporate credit rating

KUALA LUMPUR: Standard & Poor's Ratings Services (S&P) has raised its long-term corporate credit rating on Genting Bhd to 'A-' from 'BBB+' while the outlook on the gaming and leisure company is stable.

S&P had on Tuesday raised the issue rating on Genting's senior unsecured debt to 'A-' from 'BBB+'. It also raised its long-term Asean regional scale ratings on Genting and its debt to 'axAA' from 'axA+'.

It removed all the ratings from CreditWatch, where they were placed with positive implications on Nov. 26, 2013.

"We upgraded Genting following a reassessment of the surplus cash on the company's balance sheet," said Standard & Poor's credit analyst Chan Kah Ling.

"We expect the company to maintain a sizable cash balance, a significant part of which we consider to be surplus cash."

Chan said in calculating Genting's leverage, she had net surplus cash against debt. The resulting leverage and her expectations of a modest growth in EBITDA underpinned its assessment that the company's financial risk profile is "minimal".

She also took into account Genting's strong free cash flow, conservative financial management, and record of controlling leverage while expanding capacity.

“We do not expect the company's borrowings to increase substantially in the next 24 months.

Chan said S&P’s assessment of Genting's business risk profile as "satisfactory" reflects its view that the company faced "intermediate" industry risk and "low" country risk. As a large casino operator, Genting is exposed to the risks of operating in a highly regulated industry.

The company's gaming licence in Genting Highlands, Malaysia, is extended on a rolling three-month basis. However, she considered licence renewal risk to be relatively low, given that Genting's licence has been in place since the 1960s.

She said Genting's competitive position was "satisfactory" due to the group’s leading market positions in its key markets and good operating efficiency.

“Nevertheless, operational diversity is limited, in our opinion, even though the group has expanded its geographical reach from Malaysia to Singapore, the UK and the US.

“We expect Genting's EBITDA margins to remain higher than that of its peers, primarily because of Singapore's favorable gaming tax regime,” said Chan, adding she viewed Genting's management and governance as "satisfactory".

Chan considered Genting's liquidity to be "exceptional" as defined in its criteria.

She expected Genting’s ratio of internal sources of liquidity to uses to be more than 3.5 times over the next two years. Genting's large surplus cash, healthy cash flows, moderate dividends, and low capital expenditure support its liquidity assessment.

"The stable outlook reflects our expectation that Genting will generate strong operating cash flow and that its discretionary cash flow will remain positive over the next 24 months," said Chan.

"We expect the company to generate stable or modestly improving cash flows from Malaysia. We also anticipate that Genting will be prudent while expanding its business and maintain a debt-to-EBITDA ratio of less than 1.5 times over the next 24 months,” she added.