Higher duties to weigh on Genting’s ebitda: Moody’s

> Increase in casino levies, annual fee credit negative but group remains within Baa1 rating parameters

PETALING JAYA: Genting’s Bhd earnings before interest, taxes, depreciation and amortisation (ebitda) is expected to decline by around RM650 million in 2019 under a stressed scenario, where casino duties of additional 10% on gaming revenue start from Jan 1, 2019, said Moody’s Investors Service.

The rating agency said the increase in taxes, fees and levies in the gaming industry announced in Budget 2019 is credit negative for the group as the changes, particularly the increase in casino duties of up to 35%, will cause a decline in earnings contribution from its Malaysia leisure and hospitality segment and consequently weaken its leverage.

Genting currently pays casino duties of up to 25% on gaming revenue.

Moody’s also said the group will be affected by higher casino licence fee (from RM120 million to RM150 million per year) and higher machine dealer’s licence (from RM10,000 to RM50,000 per year).

The rating firm noted that the expected decline in Genting’s ebitda will erode the likely initial gains as a result of the completion of its Genting Integrated Tourism Plan (GITP) at Resorts World Genting.

GITP, which commenced in 2013, is a development that will enhance Resorts World Genting with additional food and beverage offerings, and entertainment and retail areas; a new indoor theme park; and rebuilding of the outdoor theme park as a 20th Century Fox World theme park.

While Genting’s credit metrics are projected to weaken, Moody’s said it is still within the Baa1 rating parameters.

“Leverage, as measured by debt/ebitda will likely increase to 3.8 times in 2019, from 3.5 times in 2018, while retained cash flow will likely weaken to 12% from 13% over the same period.”

Moody’s added that there is limited headroom to accommodate an increase in debt until construction of Resorts World Las Vegas (RWLV) completes and the new integrated resort starts contributing to the group’s earnings.

Ground-breaking of RWLV took place in May 2015 and its first phase of development is under way with the completion targeted for 2020. The completed project will include four towers totaling 6,583 hotel rooms.

The resort will be Genting’s first in Nevada. It also operates resorts in Malaysia, Singapore, South Korea, the United Kingdom and the Bahamas, according to its website.