The outlook on Genting Bhd’s credit rating, as well as that of its Resorts World Las Vegas LLC, was downgraded to “negative” from “stable” by Standard & Poor’s (S&P), which cited the coronavirus pandemic as a reason for the revision.
The ratings agency said the Malaysian company is likely to be hit hard by the outbreak of the deadly respiratory illness this year, with much of that negative impact being felt in the current quarter. S&P is forecasting a significant drop in visits to gaming properties around the world because of the COVID-19 virus, noting that venues “owned by Genting group are no exception.”
The negative outlook reflects our expectation that Genting will breach our downgrade trigger for the next 12 to 24 months, but its credit profile will recover quickly, such that debt/EBITDA [earnings before interest, taxation, depreciation and amortisation] falls below 2.0 times by 2022,” said the research firm.
S&P has a rating of BBB+ on Genting, putting debt issued by the company in investment-grade territory. Bonds with one of the three BBB marks in the S&P universe have “adequate protection parameters.” But “adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation.”
Pinched in Singapore
Genting is the operator of Resorts World Sentosa Singapore, one of the city-state’s two integrated resorts. The number of confirmed cases of the virus there has swelled from three on Feb. 19 to 166 as of Wednesday evening.
That increase comes as Singapore deals with a sluggish economy, which has prompted policymakers there to unleash tax breaks aimed at bolstering tourism. Some of those reductions will result in savings for Resorts World Sentosa and Marina Bay Sands, Singapore’s other gaming property.
“In Singapore, we expect revenue to decline by 30 percent to 40 percent in 2020, given our belief that the bulk of it is from customers in North Asia,” said S&P. “In Malaysia, while we acknowledge that day trippers make up about 75 percent of visitors, we forecast weak consumer sentiment amid the virus fear to lower revenue by 20 percent to 25 percent in 2020.”
Genting has a gaming monopoly in its home country of Malaysia.
Las Vegas View
Genting is slated to open the 3,500-room, $4.3 billion Resorts World Las Vegas on the Strip in summer 2021, a time frame that should provide some level of immunity for that venue against the COVID-19 pandemic.
Analysts view Genting’s foray into Sin City as an important revenue diversifier and earnings driver for the conglomerate.
“With the addition of Resorts World Las Vegas from 2021, we forecast revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) to reach record highs in 2022, and Genting’s credit profile to improve materially such that its debt-to-EBITDA ratio will fall below 2.0 times and ratio of funds from operations to debt will stay above 45 percent sustainably thereafter,” according to S&P.