KUALA LUMPUR: Genting Malaysia Bhd is raising RM2.4 billion from the fixed income market and the book building exercise closed this week, according to sources.
“They are raising it for working capital purposes as well as for their integrated theme park project that is slated to open by the end of next year. The group went on a roadshow for it last week and closed it recently,” a source told the digitaledge DAILY.
Another source said the fundraising exercise involves two tranches.
“One tranche is for RM1.3 billion — 10 years at a coupon rate of 4.9%. The other tranche is for RM1.1 billion — five years at a coupon rate of 4.5%,” the source noted.
It is understood that the notes were issued by Genting Malaysia’s wholly-owned subsidiary, GENM Capital Bhd.
A fixed-income trader said the rate of up to 4.9% is the average rate now, but pointed out that the rate for Malaysian Government Securities is moving up.
“Companies like Genting that have locked in the rates now will not be affected by any likelihood of a potential increase in rates,” noted the trader.
Interestingly, this is not the first time this year Genting Malaysia (fundamental: 2.4 ; valuation: 0.8) has undergone an exercise to raise money, citing funding for its Genting Integrated Tourism Plan (GITP) as one of the reasons for the fund raising.
Three months ago in May, Genting Malaysia announced that via its indirect unit Resorts World Ltd, it had proposed to sell its entire 17.81% stake in Genting Hong Kong Ltd for at least RM1.69 billion cash or 33 US cents (RM1.18) per share. Genting Malaysia said that no buyers had been identified at that stage, and the proceeds arising from the disposal may be used to partially fund the GITP. There have been no updates on this since then.
At the end of 2013, the locally listed gaming group unveiled its GITP — a 10-year master plan for the development, expansion, enhancement and refurbishment of hotels, theme parks and infrastructure at Resorts World Genting. The whole project is expected to cost the group RM5 billion.
Phase 1 involves a RM4 billion investment featuring the world’s first Twentieth Century Fox World theme park, while Phase 2 is expected to require another billion ringgit.
RAM Ratings in a July 30 note reaffirmed the corporate credit rating of Genting Malaysia at “AAA/Stable/P1”, as well as the “AAA(s)/Stable” rating of its proposed RM5 billion MTN Programme (2015/2035), to be issued by GENM Capital.
The local ratings agency noted that backed by its gaming business, Genting Malaysia generates a strong operating cash flow.
“The group has remained in a net cash position for the last five years, supported by [an] operating cash flow that has generally stayed above RM1.5 billion during the same period.
“For [the] financial year ended Dec 31, 2014 (FY14), its funds from operations (FFO) debt coverage remained solid at 0.92 times (FY13: 1.04 times). However, its free operating cash flow (FOCF) dipped into deficit, given major capital expenditure (capex) incurred mostly for the GITP,” RAM said.
RAM head of consumer and industrial ratings Kevin Lim in the note said: “Moving forward, we anticipate Genting Malaysia’s financial profile to remain strong, despite expected significant increases in debt load. Net gearing is expected to rise to about 0.15 times next year, while FFO debt coverage may weaken to below 0.5 times this year and improve thereafter. However, significant capex is likely to keep the group’s FOCF in deficit for this year and [the] next.”
This article first appeared in digitaledge Daily, on August 13, 2015.