Fitch Ratings has downgraded Genting Berhad and its wholly owned subsidiaries, Genting Overseas Holdings Limited (GOHL) and Resorts World Las Vegas LLC (RWLV), from BBB+ to BBB, citing high capex commitments and slower than previously expected recovery from COVID-19.
In a Friday note, Fitch said it had previously forecast a return to pre-COVID-19 levels of revenue and EBITDA in 2021 but now expects recovery to take until at least the end of 2022.
“Fitch estimates Genting’s consolidated EBITDA will fall by 80% to MYR1.5 billion in 2020, before gradually improving to MYR4.2 billion in 2021 and MYR7.4 billion in 2022,” the ratings agency said.
“The pandemic has weakened the company’s cash flows, and its high capex commitments in the next two to three years will delay deleveraging.
“The downgrade reflects Fitch’s expectation that recovery from the coronavirus pandemic will be slower than initially forecast, in particular for Singapore, which relies on international tourism, as borders are likely to remain shut for the rest of 2020 and continued social distancing measures constrain visitor volumes.
“The slow recovery and high capex commitments will keep Genting’s consolidated net leverage above 2x (adjusted net debt/EBITDAR) until end-2024, which is no longer consistent with a BBB+ rating.”
The downgrading of Genting’s subsidiaries, GOHL and RWLV, is due to both companies having a strong overall linkage to the parent company, with GOHL being the holding company for its 52.7% stake in Genting Singapore.
Both therefore also expose Genting directly to capital expenditure projects over the coming 12 months with Genting Singapore in the midst of SG4.5 billion (US$3.3 billion) redevelopment of Resorts World Sentosa and RWLV due to open mid-2021. Genting Malaysia’s Resorts World Genting is also nearing the end of its own its 10-year redevelopment plan.
“These commitments will delay deleveraging,” Fitch said, although it also expects the company to “reduce leverage closer to 3x by end-2023, supported by a gradual recovery, operating ramp-up at RWLV, and the company’s commitment to a strong capital structure.”
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