Increase in gaming taxes credit negative for Genting, says Moody’s
PETALING JAYA: The hike in taxes, fees and levies on the gaming industry, particularly the increase in casino duties of up to 35%, is credit negative for Genting Bhd, said Moody’s Investors Service.
The increase in duties, which was announced in Budget 2019, would erode Genting’s earnings contribution from its Malaysian leisure and hospitality segment, consequently weakening the group’s leverage, it said in a commentary.
Genting, which has a BAA1 stable rating, currently pays casino duties of up to 25% on gaming revenue.
“We expect Genting’s earnings before interest, taxes, depreciation and amortisation (EBITDA) to decline by around RM650mil in 2019 under a stressed scenario, where casino duties of additional 10% on gaming revenue starts from Jan 1, 2019.
“The decline will erode the likely initial gains the group will achieve in 2019 following the completion of its Genting Integrated Tourism Plan (GITP) at Resorts World Genting, Malaysia’s sole land-based casino,” said Moody’s.
The GITP, which commenced in 2013, is a development that will enhance Resorts World Genting with additional food and beverage offerings as well as entertainment and retail areas; a new indoor theme park; and the rebuilding of its outdoor theme park as a 20th Century Fox World theme park.
Additionally, the rating agency expects Genting’s credit metrics to weaken as a result of the duty hike, though it will remain within its BAA1 rating parameters.
As measured by debt/EBITDA, Genting’s leverage will likely increase to 3.8 times in 2019, from 3.5 times in 2018.
Meanwhile, the group’s retained cashflow/ debt will likely weaken to 12% from 13% over the same period.
“Although Genting’s credit metrics are expected to remain within their rating parameters of BAA1, there is limited headroom to accommodate an increase in debt until construction of Resorts World Las Vegas completes and the new integrated resort starts contributing to the group’s earnings,” said Moody’s.