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 52%-owned subsidiary, Genting Singapore PLC (GENS), at 'A-' and its SGD 2.31bn 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 plantations and energy sectors. The ratings also reflect the company's conservative financial policies.

GENS's ratings are equalised with Genting's due to the strong strategic and operational ties between the two entities, with GENS contributing about 45% of Genting's consolidated EBITDA in 2014. Sharing of brands and a history of providing financial support are also key attributes for the equalisation of the ratings.

KEY RATING DRIVERS
Moderate Weakness In Gaming: Genting's flagship gaming business has been moderately affected over the last 12 months by a combination of lower volumes and win rates across its properties. GENS' gaming and non-gaming revenues declined due to the continued weakness in the premium gaming market. In Malaysia, though gross gaming revenues (GGR) increased, lower win rates in the premium players business, and higher payroll costs and costs relating to the premium players business resulted in a lower EBITDA.

Genting's leisure and hospitality (L&H) business is driven by gaming and also includes hotels, theme parks and other attractions. The weakness in the gaming business led to Genting's L&H EBITDA margin falling to 34.8% as at 1Q15, from 42.7% in 1Q14. While Genting's gaming profitability margins have fallen, the overall profitability is consistent with its rating.

GENS Faces Multiple Pressures: Tourist arrivals to Singapore between January and April 2015 were 5.4% lower than the same period last year due to the macroeconomic slowdown and anti-corruption crackdown in China, along with the depreciating Indonesian rupiah and the uncertainty in global markets. The VIP market has accounted for almost 50% of Singapore's GGR thus far.

With the declining trend in tourist inflows since 2H14, Fitch expects the Singapore operation's GGR to either stagnate or shrink slightly. Despite GENS's EBITDA margin declining to 36% 1Q15 from 48.5% in 1Q14, it continues to be healthy. GENS is in a net cash position.

The Singapore government awarded 30-year licenses, including 10-year exclusivity periods, to both GENS and its competitor Marina Bay Sands. Should the government grant additional licenses on expiry of the exclusivity period, GENS's market position, scale and profitability would weaken. The government has to date not signaled the granting of additional licenses and Fitch believes the risk is low given the government's concerns over problem gambling.

Sizable Capex Pipeline: Genting proposes to incur capex in excess of MYR8.0bn per annum in 2015 and 2016. In 2015, 67% of the proposed capex is to be incurred on its gaming properties, with a bulk of this spent on the refurbishment and expansion of Resorts World Genting. An estimated MYR2.0bn is to be spent on two Indonesian energy projects - the Banten power plant and oil and gas exploration at Kasuri.

As Genting proposes to fund its 2015 and 2016 capex through a combination of debt, cash and operating cash flows, Fitch estimates that Genting's net adjusted debt/EBITDA less minority interest will remain below 1.0x, the level at which Fitch would consider negative rating action, until end-2016.

Net Cash Position: Genting's financial leverage on a consolidated basis is not directly comparable with that of its peers, given a high level of minority interests in almost all of its key operating subsidiaries. However, even after adjusting for this - by deducting minority interests from operating EBITDAR - financial leverage as measured by the ratio of gross adjusted debt to operating EBITDAR less minority interest was high at 3.27x in 2014 (2013: 4.08x). While this figure is high when viewed in isolation, it is mitigated by Genting's strong cash balances.

Limited Structural Subordination: With most of the group borrowing at the operating subsidiary level, and given that the holding company earns a stable and recurring stream of revenues in the form of license and management fees and dividends from its subsidiaries, the holding company's relatively low level of majority shareholding in its subsidiaries is not an immediate concern.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Genting include:
- The Banten power plant's peak construction (57% progress completion) is scheduled to occur in 2015. The incremental one-time construction revenue will translate into a 5% additional revenue growth in 2015 over the 10% recurring revenue growth likely to be generated by Genting's gaming, plantation and property businesses.
- Gaming revenue and margin growth in 2015 will be driven primarily through business growth in Resorts World Genting.
- Capex of approximately MYR8.0bn per annum will be incurred in 2015 and 2016 will be partly funded by bank debt

RATING SENSITIVITIES
Genting
Negative: Future developments that may, individually or collectively, lead to negative rating action on Genting's ratings 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 (2014: Genting was in a net cash position)
- Weakening of competitive position due to regulatory action in any of the markets Genting operates in, and
- Deviation from Genting's commitment to maintain a net cash position, especially in view of the company's development pipeline and expansion into new jurisdictions.

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, primarily due to its single-market exposure

LIQUIDITY
Ample Liquidity: As of 31 March 2015, Genting's unencumbered and restricted cash balances stood at MYR17.69bn and MYR530.40m respectively. The unencumbered cash is maintained in current accounts and short term deposits. The restricted cash is ear-marked for contractual debt repayment. Genting's cash balance exceeds its gross adjusted debt of MYR16.27bn.

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' SGD2.31bn perpetual capital securities affirmed at 'BBB'