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Rating Action:

Moody's places Genting Berhad's, Genting Singapore's and Genting Overseas Holdings' ratings on review for downgrade

16 Mar 2020

Singapore, March 16, 2020 -- Moody's Investors Service has placed on review for downgrade the Baa1 issuer rating of Genting Berhad (GENB) and the A3 issuer rating of Genting Singapore Limited (GENS).

At the same time, Moody's has placed on review for downgrade the Baa1 issuer rating of Genting Overseas Holdings Limited (GOHL), a wholly-owned subsidiary of GENB.

Moody's has also placed on review for downgrade the Baa1 backed senior unsecured rating of the notes issued by GOHL Capital Limited, a wholly owned subsidiary of GOHL. The notes are guaranteed by GOHL.

GOHL and GOHL Capital Limited are supported by a keepwell deed between GENB, GOHL, GOHL Capital Limited and the trustee of the guaranteed notes.

Moody's has changed the outlook on all ratings to ratings under review for downgrade from stable.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment.

More specifically, the expected weakening in the Genting group of companies' credit profile, including its exposure to Singapore and Malaysia have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the group remains vulnerable to the outbreak continuing to spread.

Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on the Genting group companies of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

-- Genting Berhad

The review for downgrade reflects Moody's expectation that falling international travel trends and the fear of contagion because of the coronavirus outbreak will lead to a decline in GENB's earnings, driven by weaker operating performance at the group's two largest revenue contributors, Resorts World Sentosa in Singapore and Resorts World Genting in Malaysia.

"While the extent of the negative impact caused by the virus outbreak remains unclear at this point, GENB's limited financial buffer under its Baa1 rating to withstand any deterioration in earnings poses a downside risk to its rating," says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.

Prior to the virus outbreak, Moody's had expected GENB's credit metrics to weaken in 2020 because of its debt-funded capital spending for the development of Resorts World Las Vegas.

The group's subsidiary, Genting Malaysia Berhad's acquisition of Empire Resorts, Inc. in August 2019 had exacerbated the weakening of its credit metrics, because Moody's incorporates 100% of the debt at Empire Resorts on the expectation that Genting Malaysia will be called upon to shoulder Empire Resorts' debt burden if necessary. Consequently, weaker earnings from the virus outbreak will result in GENB's credit metrics weakening beyond its Baa1 rating thresholds.

In 2019, GENB's leverage, as measured by adjusted debt/EBITDA, had weakened to 4.3x from 3.3x in 2018. Retained cash flow (RCF)/debt also weakened to 12% from 16% over the same period. In 2020, Moody's base case assumes GENB's EBITDA will decline by around 20% from that in 2019, leading to the group's leverage weakening to 5.4x and RCF/debt weakening to less than 10%.

Nonetheless, Moody's expects GENB to maintain excellent liquidity on a consolidated basis, helped by its sizeable cash position of MYR30 billion compared to gross balance sheet debt of MYR33 billion as of 31 December 2019. However, over 60% of the group's cash are held at three majority-owned and listed subsidiaries: 53%-owned GENS, 49%-owned Genting Malaysia and 55%-owned Genting Plantations Bhd; limiting GENB's ability to access the funds in their entirety.

Environmental, social and governance (ESG) issues are material to the rating outcome and were assessed as follows:

The group's power generation and oil and gas businesses operate in sectors that have been identified as having elevated environmental risk.

Nevertheless, earnings contributions from these segments remain small, with the leisure and hospitality businesses contributing close to 90% of GENB's reported EBITDA in 2019. Furthermore, there are mitigating factors to these environmental risks. For instance, the group's coal-fired power plant under PT Lestari Banten Energi holds long-term power purchase agreements with Perusahaan Listrik Negara (P.T.) (Baa2 stable). These agreements provide protection against changes in taxes and environmental regulations, such as the introduction of a carbon price.

The group's leisure and hospitality segment is exposed to elevated social risks, particularly in terms of evolving demographic and societal trends, which could drive a change in demand away from traditional casino-style gaming. These risks are somewhat mitigated by the company's value proposition as a lifestyle destination with significant nongaming attractions, including theme parks and various retail outlets as seen in Resorts World Sentosa, Resorts World Genting and the development of Resorts World Las Vegas.

Moody's has also considered governance risk stemming from concentrated ownership, because GENB is ultimately controlled by the Lim family. Moody's views the 49% acquisition of Empire Resorts - a related-party transaction - as credit negative, because Empire Resorts has weak credit quality and requires debt restructuring.

Nonetheless, governance risk is partially mitigated by the oversight exercised through GENB's eight-member board of directors, which includes five independent directors. In addition, GENB is subject to regulatory overview from the relevant gaming authorities in the jurisdictions it operates in.

During the review period, Moody's will monitor developments linked to the coronavirus outbreak and its effects on the operating performance of Resorts World Sentosa and Resorts World Genting. The review will focus on the extent of the deterioration in GENB's earnings and cash flow; both factors of which could erode the group's liquidity position, specifically, its cash holdings.

Moody's could downgrade GENB's ratings if the company's financial profile weakens due to: (1) material debt-funded acquisitions, or investments that result in higher leverage and execution risk without corresponding actions to manage the risks; (2) a significant deterioration in the performance of Resorts World Sentosa and/or Resorts World Genting; and (3) a material change in its disciplined financial management or the regulatory environments in which it operates.

Credit metrics that could indicate a downgrade include adjusted debt/EBITDA above 4.0x-4.5x and adjusted RCF/debt below 10%-15%, both on a sustained basis. Any material erosion in the group's liquidity position, and specifically cash holdings, would also be negative for the ratings.

-- Genting Singapore Limited

The review for downgrade of GENS reflects the weakening credit quality of GENB which could pose downside risks to GENS' rating.

While Moody's expects GENS' earnings will decline by around 35% from that in 2019, the company's credit metrics will remain strong. In 2020, debt/EBITDA will be at 0.3x and RCF/debt will be at 112%.

Moody's also expects GENS to maintain excellent liquidity, helped by its sizeable cash position of SGD3.9 billion compared to gross balance sheet debt of SGD261 million as of 31 December 2019. Although the cash position will deplete because of high capital spending for the expansion of Resorts World Sentosa, the company continues to stay in a net cash position.

The review will focus on the extent of the weakening in GENB's credit quality and the credit linkages between GENB and GENS.

In terms of ESG factors, Moody's has considered governance risk around concentrated ownership. GENS is ultimately controlled by the Lim family through their holdings in GENB. Nonetheless, the risk is mitigated by the oversight exercised through GENS' six-member board, which includes four independent directors. In addition, the Casino Regulatory Authority of Singapore imposes regulatory overview on GENS, and its respective board and key management personnel.

-- Genting Overseas Holdings Limited

The review for downgrade of GOHL mirrors that of GENB, given GOHL's linkage and alignment of core operations to GENB, which fully owns GOHL.

Moody's expects GOHL will have to rely on the resources of the Genting Group to redeem or refinance the principal debt repayment of its $1.5 billion notes upon their maturity in 2027, because the ability of the company to accumulate sufficient cash on a standalone basis is dependent on GENS maintaining its current dividend payouts over the life of the notes, which is uncertain under the current challenging operating environment.

In terms of ESG factors, Moody's has also considered governance risk around GOHL's private company status and concentrated ownership. As a private company, GOHL has limited corporate transparency and does not disclose quarterly financial statements. However, GOHL is a wholly-owned subsidiary of GENB, which is publicly listed and regulated by Bursa Malaysia. At the same time, GOHL is ultimately controlled by the Lim family, but Moody's believes this governance risk is partially mitigated by the regulatory overview imposed by the Casino Regulatory Authority of Singapore on GOHL, GENS and GENB, as well as their respective board and key management personnel.

The principal methodology used in these ratings was Gaming Industry published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Genting Berhad (GENB) is the investment holding and management company of a group of companies (collectively The Genting Group), which engages in various businesses, including gaming, leisure & hospitality, plantations, power and oil & gas exploration. Tan Sri Lim Kok Thay, the Chairman and Chief Executive, has a deemed interest of around 44% in GENB through Kien Huat Realty Sdn. Bhd.

Listed on the Singapore Exchange in 2005, Genting Singapore Limited's (GENS) principal activities are the development of integrated resorts and the operation of casinos. It is best known for its flagship project, Resorts World Sentosa, which is one of the largest fully integrated destination resorts in Southeast Asia. GENS is 53% owned by GENB.

Incorporated in the Isle of Man, Genting Overseas Holdings Limited (GOHL) is an investment holding company that holds a 53%-stake in GENS and in turn, is a wholly-owned subsidiary of GENB.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jacintha Poh
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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