When the credit rating of a large integrated resort group is downgraded, the market tends to pay extra attention. In the focus of PASA's official website, Moody's rating agency recently announced its latest assessment of the Genting Group. Moody's downgraded Genting Berhad and its subsidiary Genting Overseas Holdings Limited from Baa3 to Baa2, and Genting Singapore Limited from A3 to Baa1, but the outlook for all ratings remains "stable".
Main reasons for the downgrade: Increased leverage and slowed recovery
Moody's analyst Anthony Prayugo explicitly pointed out that this rating adjustment directly reflects the weakening financial position of the Genting Group. On one hand, the company's profit recovery is slower than expected, prolonging the deleveraging process. On the other hand, the group has increased its debt burden to acquire shares of Genting Malaysia Berhad, which was completed on December 1 this year, purchasing about 24% of the shares, mainly financed by issuing medium-term notes worth 3 billion ringgit (approximately 75 million USD). More critically, the group also faces the expectation of significant capital expenditures in the future due to the potential acquisition of a gambling license in New York. Simply put, the debt pressure has increased because the spending is high and the earnings are not keeping up.
New York gambling license project: Huge opportunity accompanied by massive investment
Speaking of the New York gambling license, this is a major highlight in the gambling industry recently. Genting Group's indirect subsidiary, Genting New York LLC, has been recommended as one of the candidates for three commercial casino licenses in downtown New York City. If approved by December 31, the total investment in the project will be as high as 5.5 billion USD. This amount includes the already invested 1.1 billion USD, at least 500 million USD in franchise fees, and 3.9 billion USD to be invested in stages in the future. Although the group has arranged 925 million USD in debt financing for the license fee and initial costs, the subsequent massive capital expenditures will undoubtedly further test its cash flow. However, Moody's also expects that if the project progresses smoothly, the casino's total gambling revenue could double by 2027, reaching about 2 billion USD per year.
Subsidiary rating adjustments, independence is key
This rating adjustment also affects other key entities within the group. The downgrade of Genting Overseas Holdings is mainly because it is closely connected to the core business of the parent company. Moody's specifically pointed out that this company, besides holding 53% of the shares of Genting Singapore, has no other active business and completely relies on the latter's dividends to pay interest expenses. This means that its creditors are ranked after the liabilities of Genting Singapore in the repayment order.
As for Genting Singapore, its rating downgrade follows that of its ultimate parent company, Genting Berhad. Moody's analysis believes that although Genting Singapore's rating is still higher than that of the parent company, its rating is constrained by the weaker credit quality of the parent company. In the future, if Genting Singapore's independence in decision-making is reduced, leading to more cash flowing to the parent company in the form of dividends or other means, the rating gap between the two companies may further narrow.
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This article is from "PASA-Global iGaming Leader" gambling industry news channel:https://t.me/pasa_news
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