GGRAsia – S&P says Genting Bhd governance constrains ratings

S&P says Genting Bhd governance constrains ratings

Sep 29, 2020 Newsdesk Latest News, Rest of Asia, Singapore, Top of the deck, World

An assessment of management and corporate governance at Malaysian casino conglomerate Genting Bhd has been lowered to ‘fair’, from ‘satisfactory’, by Standard & Poor’s (S&P’s) Global Ratings, citing factors including potential conflict of interest between the founding Lim family and other investors.

Standard & Poor’s said in a Monday note that the corporate governance situation at Genting Bhd had reduced the scope for improvement of its current ratings levels.

Referring to the Lim family, the Malaysian dynasty that started the Genting group, the ratings house said: “In our assessment, the founding family’s controlling stake in Genting is negative to governance.”

The institution said an example was that Genting Bhd “maintained its 2020 interim dividend at the 2019 level despite its casinos being closed amid the spread of Covid-19 in its key operating countries”.

Comparing Genting Bhd to other firms that have casino operations in Asia-Pacific, including the parent of Macau operator Sands China Ltd and of Singapore resort Marina Bay Sands, Standard & Poor’s added: “In contrast, comparable gaming peers such as Las Vegas Sands [Corp], Crown Resorts [Ltd], and SkyCity Entertainment [Group Ltd], suspended dividend programmes to preserve cash and management leverage ratios.”

The ratings institution further suggested: “Such constraints at Genting [Bhd] contributed partly to a near-term credit profile that is worse than comparable peers’.”

Referring to a portfolio of Lim family-controlled investment vehicles that is a major investor in Genting Bhd, Standard & Poor’s stated: “The broader ownership linkages of the Lim family – beneficiaries of Kien Huat – could create potential conflict of interests, given the Lim family also has board representation in multiple Genting entities.”

According to recent media reports, Kien Huat has a 43-percent stake in Genting Bhd.

Ratings affirmed

In its Monday note, Standard & Poor’s nonetheless affirmed a ‘BBB’ rating for Genting Bhd on its long-term issuer credit. For the group’s unit Resorts World Las Vegas LLC, developer of a new casino resort in the Nevada, United States, gaming hub, the credit rating house affirmed a long-term issuer credit rating of ‘BBB-’.

The Resorts World Las Vegas entity’s senior secured debt and senior unsecured notes were also affirmed at ‘BBB-’.

The operation of the Las Vegas property, expected to start in the summer of 2021, might boost 2022 group earnings before interest, taxation, depreciation and amortisation (EBITDA) “to 90 percent to 95 percent of pre-Covid[-19] levels,” suggested Standard & Poor’s.

“We estimate Resorts World Las Vegas to make up 10 percent to 15 percent of Genting’s EBITDA in 2022,” said the institution.

The recovery of the group’s Singapore casino operation – at Resorts World Sentosa, run by Genting Singapore Ltd – was currently “weaker than we had expected, due to Genting [Singapore]‘s reliance on international tourism while border restriction remains tight”.

Last week the chief executive of Singapore Tourism Board said it might take up to five years for the city-state’s inbound tourism market to recover from the disruption of the pandemic.

By contrast, the Genting brand’s Malaysia casino monopoly at Resorts World Genting, run by the Genting Malaysia Bhd unit, benefitted from having a higher proportion of domestic customers, said the ratings house.

Standard & Poor’s expected the Malaysia operation’s 2021 leisure and hospitality EBITDA to reach 55 percent to 60 percent of the 2019 level, before exceeding that level in 2022, “spurred by resilient local demand, which we estimate at about 75 percent of the revenue mix, and stronger volume from VIPs given they cannot fly out of Malaysia to play”.

Malaysia’s tourism minister said recently the country might keep its borders closed to international tourists until the second quarter of next year.

Genting Malaysia’s other operations, in markets including the United States and the United Kingdom, should see “faster recovery” than some gaming assets in the Genting group, on the basis that “domestic demand dominates” in the U.S. and the U.K.

A fortnight ago, a research report on Genting Malaysia, from Nomura, said the likelihood of struggling Genting Hong Kong Ltd, a Hong Kong-listed Genting group unit that runs casino cruise ships, requiring a “bailout”, was “lower now” than previously.