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RAM Ratings downgrades Genting arms to AA1, outlook to negative

Malaysia’s RAM Ratings has downgraded the ratings of Genting Berhad and Genting Malaysia Berhad from AAA to AA1 and revised their outlook from stable to negative on expected weaker performance due to COVID-19.

According to RAM, the downgrade reflects a high degree of uncertainty over the ultimate impact of COVID-19 on both companies with neither expected to restore their credit metrics inside the next two years. The pandemic, it says, has hit the Genting Group much harder than was initially expected.

“We envisage severe revenue contraction for Genting (relative to 2019 levels) until at least 1H21,” RAM said.

“Its earnings are only likely to be restored to pre-crisis levels in 2022 at the earliest – against our initial expectation that they would mostly normalize by 2021. Although the Group has implemented cost optimization measures, these are unlikely to fully mitigate the impact on its earnings.

“After the plunge in fiscal 2020, Genting’s operating profit before depreciation, interest and tax is envisaged to stay below pre-crisis levels in fiscal 2021 amid a tepid recovery in business volumes.”

RAM noted that recent capex on Genting’s Resorts World Las Vegas and Genting Malaysia’s Resorts World Genting, combined with the acquisition of a 49% stake in US-firm Empire Resorts – operator of New York’s Resorts World Catskills – had led to negative cashflow in 2019. Combined with sustained dividends, Genting Berhad’s nets cash position had already turned to net debt of MYR2.4 billion as of December 2019.

With more capex required for RWLV and weak cash flow, Genting’s net gearing ratio is projected to deteriorate to around 0.35 times by December 2022. As such, “its credit metrics are no longer consistent with its previous AAA ratings,” RAM said.

“The gaming sector has been severely hit by COVID-19,” it continued.

“The negative effects of the COVID-19-induced economic slowdown on consumer income and wealth will constrain discretionary spending on gaming and leisure activities. Concurrently, lingering fear of the coronavirus may affect travel plans and impede patronage. These repercussions are likely to persist even after the health crisis subsides and travel restrictions are relaxed.”

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