Fitch Ratings recently reaffirmed Genting Malaysia’s ‘Long-Term Issuer Default Rating’ (IDR) as ‘BBB/Stable,’ maintaining a solid outlook for the company amidst strong domestic performance and expected improvements in its financial structure. However, Genting New York (GENNY), a subsidiary of Genting Malaysia (GENM), faces uncertainty, with its rating placed on Rating Watch Negative (RWN) due to potential risks surrounding its bid for a full-scale casino license in New York.
In the context of this mixed outlook, the broader picture of Genting Malaysia’s growth trajectory and its relationship with parent company Genting Berhad (GENT) offers insight into the current stability and future prospects of the company. Below, we explore the various facets of Genting Malaysia’s financial and operational performance, the underlying drivers of its current credit ratings, and the potential impact of the New York casino license bid on the company’s future.
Genting Malaysia (GENM) Affirmed at ‘BBB/Stable’
Fitch Ratings’ decision to reaffirm Genting Malaysia’s ‘BBB/Stable’ rating reflects the company’s steady recovery following the pandemic and its strong performance in key markets, particularly Malaysia. In the first half of 2024 (H1 2024), Genting Malaysia recorded a 14% year-on-year increase in revenue, driven by a surge in domestic traffic and a rebound in international tourism as regional travel restrictions were lifted. Malaysia alone accounted for 60% of the company’s total revenue, highlighting its importance to Genting Malaysia’s overall financial health.
The rating also takes into account Genting Malaysia’s Standalone Credit Profile (SCP), which was maintained at ‘bbb-.’ The SCP represents the company’s intrinsic creditworthiness, independent of external factors such as parental support. Despite the challenges faced by the global gaming industry, Genting Malaysia has shown resilience, thanks to its diversified portfolio and strong brand presence.
Genting Berhad’s Influence on Genting Malaysia’s Rating
Fitch Ratings equalized Genting Malaysia’s IDR with that of its parent company, Genting Berhad, which also holds a ‘BBB/Stable’ rating. Genting Berhad owns a 49% stake in Genting Malaysia, and the close relationship between the two companies plays a crucial role in determining Genting Malaysia’s credit rating. According to Fitch’s assessment, Genting Berhad has high incentives to support Genting Malaysia, which provides an added layer of stability for the latter’s financial outlook.
This connection is essential because it underscores the strength of Genting Malaysia’s creditworthiness, beyond just its standalone performance. The parent-subsidiary relationship mitigates some risks, as Genting Berhad’s resources could be leveraged in case Genting Malaysia faces financial distress. This symbiotic relationship is one of the key reasons why Fitch has maintained a stable outlook for Genting Malaysia, even as challenges remain in certain markets.
Revenue Growth Driven by Domestic and International Tourism
One of the key drivers of Genting Malaysia’s stable rating is its robust performance in the Malaysian market. In H1 2024, the company posted revenues of RM5.43 billion ($0.62 billion), with a notable increase in Q2 revenues to RM2.67 billion. The 14% year-on-year growth reflects the rebound in domestic consumer spending as well as a significant uptick in international tourists returning to Malaysia, as global travel restrictions eased.
Genting Malaysia’s flagship property, Resorts World Genting, has been a major contributor to this growth, benefitting from its status as a leading entertainment and leisure destination in the region. The resort offers a wide range of attractions, including hotels, casinos, theme parks, and shopping centers, making it a top choice for both local visitors and international tourists.
As regional travel continues to recover, the company is optimistic about sustaining this growth trajectory. In fact, Fitch Ratings anticipates that Genting Malaysia’s financial metrics will continue to improve, with the company’s EBITDA net leverage expected to decline from around 4.0x in 2023 to approximately 3.0x by 2026. This reduction in leverage would reflect higher EBITDA growth, supported by the ongoing recovery in consumer demand.
EBITDA and Net Leverage Projections
Fitch’s forecast of a decline in EBITDA net leverage signals optimism about Genting Malaysia’s ability to manage its debt and improve its overall financial structure. In 2023, the company’s net leverage stood at around 4.0x, but this is expected to decrease as EBITDA grows and debt levels stabilize. By 2026, Genting Malaysia’s net leverage is projected to reach a healthier level of around 3.0x.
This projection is a positive sign for investors, as it indicates that Genting Malaysia is on track to strengthen its balance sheet and enhance its credit profile. The company’s ability to generate higher EBITDA, while keeping debt under control, is critical to maintaining its investment-grade rating. Fitch’s forecast reflects confidence in Genting Malaysia’s capacity to navigate the challenges posed by the global gaming industry and capitalize on opportunities for growth in key markets.
Genting New York’s Rating Watch Negative (RWN)
While Genting Malaysia’s outlook remains stable, its subsidiary, Genting New York (GENNY), faces greater uncertainty. Fitch Ratings placed Genting New York’s rating on Rating Watch Negative (RWN), reflecting concerns over the potential risks associated with the company’s bid for a full-scale casino license in New York. If Genting New York is unsuccessful in securing the license, it could negatively impact the company’s financial position and growth prospects.
The bidding process for the New York casino license is highly competitive, and there is no guarantee that Genting New York will be successful. The outcome of the bid will have significant implications for the company’s future, as winning the license would enable Genting New York to expand its operations and diversify its revenue streams. However, the risk of failure remains, and this uncertainty has led Fitch to adopt a more cautious stance on the company’s rating.
Potential Benefits of Winning the New York Casino License
Despite the uncertainty surrounding the bid, the potential rewards for Genting New York are substantial. If the company is successful in securing the full-scale casino license, it would significantly enhance its geographic diversification and provide a major boost to its operations in the United States. Additionally, the license would likely lead to a reduction in the tax burden on Genting New York’s gross gaming revenue, which currently stands at around 65%.
A successful bid would allow Genting New York to tap into the lucrative gaming market in New York, which is one of the largest in the United States. The expansion of the company’s footprint in the U.S. would also help mitigate the risks associated with over-reliance on the Malaysian market, providing a more balanced and diversified revenue base. This geographic diversification is an important strategic goal for Genting Malaysia, as it seeks to reduce its exposure to fluctuations in the Malaysian economy and the broader Asian market.
Overall, Genting Malaysia’s reaffirmed ‘BBB/Stable’ rating from Fitch Ratings underscores the company’s resilience and strong performance in its core markets. The rebound in domestic traffic and international tourism has been a key driver of revenue growth, while the company’s improving financial structure points to a positive long-term outlook.
However, the uncertainty surrounding Genting New York’s bid for a full-scale casino license remains a significant risk factor. The outcome of the bid will have far-reaching implications for Genting New York’s future prospects and could potentially impact Genting Malaysia’s overall performance.
For now, Fitch Ratings has expressed confidence in Genting Malaysia’s ability to navigate these challenges, thanks in large part to the support of its parent company, Genting Berhad. As the company continues to strengthen its financial position and capitalize on growth opportunities, its long-term outlook remains stable. However, the coming months will be crucial for Genting New York, as the casino license bid process unfolds and the company’s future in the U.S. market becomes clearer.