TEXT-S&P summary: Genting Bhd.

Dec 11 -

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Summary analysis -- Genting Bhd. ---------------------------------- 11-Dec-2012

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CREDIT RATING: BBB+/Stable/-- Country: Malaysia

Primary SIC: Hotels and motels

Mult. CUSIP6: 372452

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Credit Rating History:

Local currency Foreign currency

16-May-2011 BBB+/-- BBB+/--

19-Dec-2007 BBB/-- BBB/--

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Rationale

The rating on Genting Bhd., a Malaysia-based gaming and leisure group,

reflects the group's solid market position, strong cash flows, and "modest"

financial risk profile. The risks arising from overseas expansion, earnings

concentration in the gaming business, and exposure to evolving regulations

partly offsets these strengths.

We view Genting's business risk profile as "satisfactory." The group has a

solid market position in gaming and has improved its geographic diversity over

the past few years. These factors have strengthened Genting's brand awareness,

and boosted other established brands such as "Resorts World," "Maxims,"

"Crockfords," and "Awana." The Genting group is the second largest gaming

company in the world, after Las Vegas Sands Corp. (BB+/Positive/--).

In our view, strong cash flow generation from Genting's gaming business

supports the rating, despite the group's earnings concentration in this

segment. Genting's gross margin remains the highest among its peers, at more

than 45% over the past two years, thanks to the favorable gaming tax regime in

Singapore. Resorts World Sentosa (RWS) in Singapore, which currently

contributes more than 45% of Genting's group EBITDA, is one of the largest

gaming properties in the world in terms of EBITDA generation, even though

growth in Singapore's gaming market has slowed materially since two integrated

resorts (Marina Bay Sands and RWS itself) opened in early 2010. The group's

Malaysian gaming operation, Resorts World Genting, recorded higher revenue

year-on-year for the first nine months of 2012 mainly due to an overall

increase in volume of business.

The Genting group's financial performance in the first nine months of 2012 was

below our expectations. Revenue declined (on a year-on-year basis) in most

business segments, particularly the Singapore gaming operations, which were

exposed to economic volatility and competitive pressures in the region, given

their reliance on international customers. We believe uncertain regulatory

policies could constrain gaming market growth in Singapore, and anticipate

that net gaming revenue in full-year 2012 will decline by about 5%. Our

preliminary expectation for 2013 is that net gaming revenue will grow by

0%-5%.

Our assessment of Genting's financial risk profile reflects our view of the

group's conservative financial management and record of controlling leverage

while expanding capacity. The group has solid financial strength, due to its

strong liquidity and profitability at its leisure and gaming operations. In

our base case, we expect Genting's financial performance to remain

satisfactory in 2013 supported by more stable gaming industry conditions in

the region despite uncertainties in the global economy. We expect revenue to

grow by 3%-5% a year in 2013-2015. We anticipate that the group's ratio of

gross debt to EBITDA will stay at or below 3.0x in the same period (the ratio

was 2.9x on a rolling 12-month basis in the third quarter of 2012, including

perpetual securities as debt) and be significantly stronger after netting off

surplus cash over the next two years. However, the ratio could deteriorate

depending on the group's appetite for growth in the gaming sector.

The rating incorporates our view that Genting could make large-scale

investments, through Genting Singapore PLC (GENS; not rated). GENS raised

Singapore dollar (S$) 2.3 billion via perpetual subordinated capital

securities (PerpS) in March and April 2012. PerpS are subordinated, deferrable

securities with no fixed maturity date. In accordance with our criteria on

hybrids, we assign minimal equity credit to PerpS, treating them entirely as

debt when calculating credit ratios. However, we acknowledge that PerpS have

certain equity-like characteristics when interpreting the company's metrics

and assessing its financial risk profile.

Liquidity

We assess Genting's liquidity as "strong," as defined in our criteria. We

expect the company's sources of liquidity to exceed its uses by at least 1.5x

over the next 12 months, and by more than 1.0x over the next 24 months. Our

liquidity assessment incorporates the following expectations and assumptions:

-- The group's sources of liquidity include unrestricted cash balances of

about Malaysian ringgit (MYR) 18.34 billion and available-for-sale financial

assets of about MYR3.06 billion as of Sept. 30, 2012, and funds from

operations of more than MYR6.0 billion.

-- Uses of liquidity include capital expenditure, working-capital

requirements, debt repayments, and dividend payouts. As of Sept. 30, 2012, the

group has MYR2.10 billion in short-term borrowings.

-- Net sources will remain positive and the group will remain in

compliance with its financial covenants even if EBITDA declines by 30%.

-- Genting has established and supportive banking relationships.

Refinancing risk is manageable, with debt maturities fairly well spread.

GENS' receivables are stabilizing. In our opinion, any significant increase in

GENS' receivables adds to the group's credit risk. Receivables increased in

2011 mainly due to credit provided to direct high-rollers to RWS. Such risk

could heighten if advances to direct players increase to secure a bigger share

of the "VIP" business.

Outlook

The stable outlook reflects our expectation that Genting will continue to

generate strong operating cash flows, and that its free operating cash flows

will remain positive. The outlook also incorporates our expectation that

Genting will take a prudent approach to further expansion while maintaining

strong liquidity.

Execution risk, particularly risk associated with gaming expansion, will limit

rating upside for the next few years. Beyond that, we could raise the rating

if Genting materially improves its financial performance such that its ratio

of total debt to EBITDA is at or lower than 1.5x on a sustained basis. We

could also raise the rating if the group further diversifies its revenue

sources.

We could lower the rating if Genting's cash flows materially weaken, or the

company engages in aggressive debt-funded acquisitions or expansion projects

such that its ratio of total debt to EBITDA stays above 2.5x (after

considering surplus cash) on a lasting basis, and its strong liquidity

position materially diminishes.

Source: http://news.yahoo.com/text-p-summary-genting-bhd-111644448--sector.html

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