KUALA LUMPUR (Jan 14): RAM Rating Services Bhd (RAM Ratings) does not expect the insolvency filing by Genting Hong Kong Ltd’s shipbuilding subsidiary to directly affect the ratings of Genting Bhd and Genting Malaysia Bhd (GenM).

This comes after the Hong Kong-listed cruise ship operator’s indirect wholly-owned German-based subsidiary MV Werften Holdings Ltd (MVWH) had filed for insolvency on Monday (Jan 10) at a local court in Germany as negotiations to rescue the company between the local governments and the company had failed.

The insolvency could cause a potential cross default amounting to US$2.78 billion (approximately RM11.66 billion) and relevant creditors affected may either demand payment or take actions regarding the financing terms.

In a statement on Friday, RAM Ratings’ analysts Amy Lo and Thong Mun Wai highlighted that despite Genting Hong Kong and Genting having a common shareholder, its borrowings have no cross-default provisions, guarantees or keepwell structures that may affect the group.

Tan Sri Lim Kok Thay and his family own 75.5% in Genting Hong Kong and 43% in Genting Bhd, which is listed on Bursa Malaysia.

“In view of the separate corporate lineages, Genting has confirmed that Genting Hong Kong’s borrowings have no cross-default provisions, guarantees or keepwell structures that may affect the group.

“The ownership linkages of the Lim family with Genting group entities do however raise concerns about potential conflicts of interest,” RAM Ratings’ analysts Amy Lo and Thong Mun Wai wrote in the report.

RAM Ratings added that a possible demand for resources to support businesses held by its shareholders may put further pressure on Genting to increase its dividend payouts.

The ratings agency said that Genting had declared lower dividends (RM863 million) for its first nine months ended Sept 30, 2021, compared with RM1.7 billion in the previous corresponding period. Still, the dividend payout is substantial considering the group’s financial losses during the period.

“Higher than expected dividend distributions to shareholders could offset tentative signs of recovery seen in the group’s operations from the trough in 2020 and 1H 2021,” the duo wrote.

Meanwhile, RAM Ratings noted that Genting’s Malaysian operations have registered strong business volumes since the interstate travel ban was lifted in November 2021 while its overseas operations in New York and the UK have continued to outperform expectations.

RAM Ratings had maintained a negative outlook on Genting’s ratings in August last year which was premised on the expectations that the group’s credit metrics would stay under stress in the near term before recovering to levels commensurate with its ratings in the financial year ending Dec 31, 2023 (FY23).

“Potential rating actions in our next review of the rated entities will take into account recent developments and the pace of recovery of Genting’s operations against our expectations, among other factors,” the analysts noted.

Genting’s share price fell four sen to RM4.63 giving it a market capitalisation of RM17.82 billion while GenM’s share price rose 0.5 sen to RM2.91 with market capitalisation of RM16.45 billion.