RAM Ratings reaffirms Genting’s corporate credit ratings

KUALA LUMPUR: RAM Ratings has reaffirmed the respective long- and short-term corporate credit ratings of GENTING BHD [] at AAA and P1.

It has also concurrently reaffirmed the enhanced long-term AAA(s) rating of GB Services Bhd’s (GB Services) RM1.6 billion Medium-Term Notes Programme (2009/2024).

It said on Thursday, July 28 that the enhanced rating of GB Services’ debt programme was premised on an unconditional and irrevocable corporate guarantee from Genting.

Both long-term ratings have a stable outlook, it said in a statement July 28.

RAM Ratings said Genting’s credit profile was supported by strong and steady cashflow contributions from its leisure and hospitality (L&H) business, particularly Resorts World Sentosa (RWS) in Singapore as well as Resorts World Genting (RWG) in Malaysia.

‘We note RWS benefits from lower tax structure in Singapore while RWG enjoys a monopolistic position in Malaysia and is still well supported by the dominance of its mass market segment.

“The opening of RWS in 2010 has also improved geographical diversity of the Group’s L&H operations. The Group continues to boast strong balance sheet, debt-protection measures and liquidity position,” it said.

However, these positives are moderated by the group’s exposure to regulatory risk and susceptibility of its Singapore’s L&H earnings to events that may affect the tourism industry, it said.

The rating agency said Genting’s revenue leapt in FY Dec 2010 to RM15.19 billion (+70.9% y-o-y) while its operating profit before depreciation, interest and tax (OPBDIT) increased to RM6.63 billion (+97.9% y-o-y), largely underpinned by higher-than-expected maiden contributions from RWS.

The group had also reverted to its net-cash position with an impressive RM15.46 billion of cash and cash equivalents as at end-March 2011, it said.

Meanwhile, the Group’s funds from operations (FFO) debt cover rebounded to 0.48 times in FY Dec 2010 from 0.19 times a year ago, exceeding our projection of around 0.3 times, it said.

Looking ahead, Genting’s balance sheet and cashflow protection measures are envisaged to remain strong with net gearing at less than 0.10 times and its FFO debt cover at above 0.40 times over the medium term, it said.

RAM Ratings said that while capital expenditure plans for Phase 2 of RWS were still significant, the group’s exposure to CONSTRUCTION [] and execution risks vis-à-vis the RWS project has declined substantially since the opening of the first phase of the IR.

Given its sizeable war chest, the group is continuously on the lookout for new investments to strengthen its position as a global gaming player; this includes expanding its businesses in the US as well as possible investments in other regions, it said.

It has also been reported in the press that the group is eyeing potential ventures in Vietnam to develop resort facilities that include gaming operations, it said.

RAM Ratings hed of consumer and industrial ratings Kevin Lim said that as the group expands its portfolio overseas, it may face new business risks and increased competitive pressure, particularly in untested markets or markets that are more competitive.

“Nonetheless, RAM Ratings expects the Group to maintain its cautious stance on potential investments while preserving its conservative financial policies," he said.