KUALA LUMPUR (June 8): S&P Global Ratings said today that the rating on Genting Bhd (BBB/Negative/--) will come under further pressure if the lockdown in Malaysia and capacity restrictions in Singapore are extended, and the group cannot offset the impact of these curbs through other financial means.

The rating agency said in a statement that Genting's delayed recovery in operations and elevated capital expenditures continue to offer thin rating headroom over the next 12 to 18 months.

“The recovery of the company's debt-to-EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio to below three times and ratio of funds from operations to debt to over 30% could be pushed beyond 2022, if lockdown and capacity restrictions persist,” it said.

It added that the recently imposed lockdown in Malaysia and capacity curb in Genting's two key operating countries will likely weaken earnings and operating cash flow for the rest of the first half of 2021, adding further pressure on its credit quality.

With confirmed cases in Malaysia trending down from over 7,000 daily in early June, Genting's operations for 2021 may not recover to its level of expectations unless vaccination rate speeds up significantly in Malaysia, said S&P.

According to S&P, Malaysia's interstate travel ban has already lowered the company's first-quarter 2021 revenue and EBITDA by 26% and 54% respectively, compared with the fourth quarter of 2020.

Nevertheless, it believed the grand opening of Resorts World Las Vegas LLC (RWLV; BBB-/Negative/--) later this month will support Genting's diverse business mix and soften current operational headwinds in Southeast Asia.

Visitations to the Las Vegas Strip had recovered to about 70% of pre-pandemic levels in April 2021, according to S&P.

Furthermore, the high proportion of fully vaccinated individuals in the US at 42% has reduced the anxieties around Covid-19 and is supportive of RWLV's business ramp-up for the rest of 2021, it added.

Similarly, revenue from Genting's New York operations in the first quarter of 2021 returned to 70% of pre-pandemic levels and the US operations could now recover faster than it had expected given operating hours normalised from April.

Meanwhile, Genting's UK operations also restarted in mid-May after a long closure since the middle of last year, it noted.

“We believe Genting is striving to control its negative discretionary cash flow by adding flexibility in its investment plans and contemplating plans to dispose of non-core assets,” it said.

Following the completion of its Malaysian theme park and RWLV, Genting's main pending project is the Resorts World Sentosa 2.0 expansion, said S&P.

“While this would continue to elevate the company's investment plans, we expect the timing and level of investments to be partly dependent on current operational conditions.

“The group's large cash balance will support its ongoing expansionary spending and periods of negative discretionary cash flows,” it said.

Genting's asset disposal plans include Genting Malaysia Bhd's (BBB/Negative/--) planned disposal of a UK hotel, which S&P expects to be completed in the first half of this year.

Genting closed 12 sen or 2.37% higher at RM5.18 today, valuing the group at RM19.91 billion.

Meanwhile, Genting Malaysia ended 10 sen or 3.48% higher at RM2.97, giving it a market cap of RM16.79 billion.