Fitch Ratings said GENTING BHD []'s ratings are not affected by its bid for the development and operation of a video lottery facility at the Aqueduct Racetrack in New York City, and by the proposed transfer of the ownership of the group's United Kingdom gaming operations.
Genting announced on June 30, 2010 that it is one of three bidders for the development and operation of the only proposed video lottery operations in New York City.
The successful bidder is required to make a minimum upfront payment of US$300 million to the New York state government, in addition to the development costs of the facility which can house up to 4,500 video lottery terminals, according to statement issued on Monday, July 5.
"The total investment, including the upfront payment, will likely be significantly lower than Genting's S$6.6 billion (US$4.7 billion) investment in Singapore and relative to its balance sheet. As such, Fitch does not expect the investment, in itself, to lead to a negative rating action on Genting," says Buddhika Piyasena, Director of the agency's Asia Pacific Corporates team.
However, given the nature of operations and high taxes applicable, Fitch expects profitability of this venture, if Genting wins the bid, to be considerably lower compared to its highly profitable gaming operations in Malaysia.
Fitch will review Genting's ratings if the company is chosen as the successful bidder and once more details of the investment are available.
Separately, Genting Malaysia Bhd (48.6%-owned by Genting) has proposed to acquire the UK gaming operations of Genting Singapore Plc (51.8%-owned by Genting).
Financial performance of the UK operations has been weak due to difficult economic conditions in the UK and adverse developments in gaming-related taxes.
The transfer of ownership between Genting's subsidiaries is neutral on Genting's ratings. The agency however views that the more cash rich and operationally stronger Genting Malaysia Bhd can easily support the UK operations which face a challenging outlook.
Genting - with a foreign currency Issuer Default Rating (IDR) of 'A-' with a Negative Outlook and a senior unsecured debt of 'A-' - is the highest Fitch-rated gaming company globally primarily because of the strong and steady cash generation of its Malaysian gaming operations.
The outlook may be revised to Stable if its newly opened Singapore integrated resort generates steady free cash flows while the group continues to maintain its financial leverage comfortably below 1.0 times.
Conversely, a negative rating action may be taken if the above factors are not met, and/or if the group makes any large investment in more competitive gaming markets.
At March 2010, Genting was in a net cash position and its interest coverage (fund flow from operations to gross interest) was strong at around 10 times.
Written by Fitch Ratings
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