OREANDA-NEWS. Fitch Ratings has affirmed Malaysia-based gaming conglomerate Genting Berhad's (Genting) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'A-'. Fitch has also affirmed the Long-Term Foreign - and Local-Currency IDRs on Genting's 53%-owned subsidiary, Genting Singapore PLC (GENS), at 'A-' and its SGD2.3bn perpetual capital securities at 'BBB'. The Outlooks for Genting and GENS are Stable.

Genting's ratings reflect its continued strong market position in the Malaysian and Singaporean

Gaming markets and meaningful diversification in the oil palm plantations and energy sectors. Genting's leisure and hospitality business, which includes its gaming, hotel and theme park businesses, accounted for 81% of consolidated EBITDA in 2015. Oil palm plantations (5%), energy (4%) and property, investment and others (10%) account for the balance 19%.

GENS's ratings are equalised with those of Genting due to the strong strategic and operational ties, with GENS contributing 47.2% of Genting's consolidated EBITDA in 2015. Brand-sharing and a history of providing financial support are also key attributes for the equalisation of the ratings.

KEY RATING DRIVERS

Strong Market Position: Genting's ratings reflect its monopoly position in Malaysia and 40% market share in the duopolistic Singapore market. Genting's leisure and hospitality business in both these countries account for 81% of consolidated EBITDA. The gaming industry in both these countries is subject to close regulatory oversight, and the resultant barriers to entry impart a degree of stability to cash flows across the business cycle.

EBITDA Compression: Consolidated EBITDA margin declined to 34.7% in 2015 (2014: 36.4%), due to a lower hold percentage in the premium players business, a higher number of bad debts written off, and the impact of the 6% Goods and Service Tax that has been levied in Malaysia since 1 April 2015. Translation losses and the continued impact of the GST resulted in a more significant decline in the consolidated EBITDA margin to 23.5% in 1Q16 (1Q15: 40.9%). Yet Genting's EBITDA margin continues to be robust, and the entity had maintained its net cash position as of 31 March 2016.

GENS Faces Multiple Pressures: During FY15 and 1Q16, GENS reported declining revenues, lower EBITDA margins, deteriorating performance of its VIP gaming business, and impairment of credit extended to its VIP customers. These adverse developments were partially offset by the relatively stable performance of its mass-market gaming business. The net cash position is a trend which Fitch expects will be sustained in the medium term.

Marina Bay Sands (MBS, BBB-/Stable) cannibalised GENS's market share on account of its locational advantage, i. e. proximity to Singapore's Central Business District, premium product positioning, and targeting the MICE (Meetings, Incentives, Conferences, and Events) segment. MBS's market share rose to 60% of GGR in 2015 from 50% in 2012, while GENS's correspondingly fell to a still-significant 40%.

The Singapore government awarded 30-year licences, including 10-year exclusivity periods, to both GENS and MBS. GENS's market position, scale and profitability would weaken should the government grant additional licences on expiry of the exclusivity period. The government has not signalled the granting of additional licences to date, and Fitch believes the risk is low - given the government's concerns over problem gambling.

Substantial Capex Pipeline: Fitch expects Genting to incur annual capex of MYR7.0bn-8.0bn from 2016 to 2018. Of this capex, almost 40% is likely to be incurred by Genting Malaysia Berhad, mostly on Resorts World Genting, and to a limited extent on the UK, US and Bimini (Bahamas) properties. GENS and plantations would account for 8% and 6%, respectively, of the projected capex, while the power and oil and gas division would account for approximately 5%. Resorts World Las Vegas is another major pipeline project. Fitch believes that Genting would embark on full-scale project development only when market conditions are conducive.

Capital Management Initiatives: Fitch takes a favourable view on Genting's capital management initiatives to maintain leverage at less than 1.0x. This could include the strategic sale of non-core assets such as the 2015 proceeds from disposal of investments for MYR2.7bn.

The company maintains a conservative financial policy, keeping a historical net cash position on a consolidated basis. However, as the company embarks on a period of high capex, leverage may rise slightly above this long-term trend, but still within Fitch's 1.0x net adjusted debt to operating EBITDAR less minority interest tolerance for the rating level.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Genting include:

- Consolidated annual revenue growth in FY16 and FY17 is projected to be in excess of 10%

- Operating EBITDAR margin will be maintained at over 30% in FY16 and FY17

- Annual capex incurred from 2016 to 2018 will range from MYR7.0bn to MYR8.0bn, and

- Annual dividend payout during 2016 to 2018 will range from MYR400m to MYR500m.

RATING SENSITIVITIES

Genting

Negative: Developments that may, individually or collectively, lead to negative rating action include:

- Net financial leverage (as measured by the ratio of net adjusted debt to operating EBITDAR less minority interest) being sustained at more than 1.0x. Fitch expects Genting to revert to a net cash position once it completes pipeline projects.

- Weakening of competitive position due to regulatory action in any of the markets in which Genting operates, and:

Upside potential to the ratings is limited by the discretionary nature of gaming expenditure incurred by gaming patrons and the cyclicality and capital intensity of the gaming business.

GENS

Any weakening of operational and strategic ties between GENS and Genting will result in GENS's rating being notched down from its parent's rating.

Fitch assesses GENS's standalone rating at 'BBB', despite its operational and financial metrics being in line with Genting's consolidated numbers, due primarily to its single-market exposure.

FULL LIST OF RATING ACTIONS

The full list of rating actions is as follows:

Genting Berhad

Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable

Senior unsecured rating affirmed at 'A-'

Genting Singapore PLC

Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable

Long-Term Local-Currency IDR affirmed at 'A-'; Outlook Stable

Rating on GENS's SGD2.3bn perpetual capital securities affirmed at 'BBB'