Fitch Ratings, a global leader in credit ratings and financial information services, has reaffirmed the ‘Long-Term Issuer Default Rating (IDR)’ of Genting Malaysia Berhad (GENM) at ‘BBB/Stable’. This affirmation comes as part of a comprehensive review of the company’s financial performance and standing, reflecting its resilience in a challenging global economic environment. At the same time, Genting New York (GENNY) has been rated ‘RWN’ (Rating Watch Negative) due to ongoing uncertainties surrounding its bid for a full-scale casino license in New York.

Fitch Ratings Confirms Genting Malaysia’s ‘BBB/Stable’ IDR While Genting New York Faces RWN Status Amid Casino License Uncertainty

Genting Malaysia’s Standalone Credit Profile and IDR Affirmation

Fitch maintained Genting Malaysia’s Standalone Credit Profile (SCP) at ‘bbb-’, emphasizing that GENM’s financial health is closely tied to its parent company, Genting Berhad (GENT), which holds a 49% ownership stake in the company. Genting Berhad’s ‘BBB/Stable’ rating directly influences GENM’s IDR, as Fitch believes that GENT has strong incentives to support GENM if needed. This financial alignment between parent and subsidiary is a key reason why GENM’s rating was reaffirmed as stable.

Revenue Growth Driven by Domestic and International Tourism

One of the primary drivers for Fitch’s rating affirmation is GENM’s strong revenue performance in Malaysia, its primary market, which accounts for 60% of the company’s total revenue. In the first half of 2024 (H1 2024), GENM’s revenue grew by 14% year-on-year, driven by a recovery in domestic traffic and a surge in international tourist arrivals, as regional travel continued to rebound after pandemic-related restrictions were lifted.

This robust performance was also reflected in Genting Malaysia’s overall financial results for the second quarter of 2024. The company reported Q2 revenue of RM2.67 billion ($0.62 billion), bringing its total H1 revenue to RM5.43 billion ($1.26 billion). This steady revenue growth, supported by an increase in both domestic and foreign tourists, underlines the company’s capacity to capitalize on Malaysia’s ongoing economic recovery.

Improving EBITDA and Financial Leverage

Fitch’s assessment of GENM’s future financial health highlights an optimistic forecast for its EBITDA (earnings before interest, taxes, depreciation, and amortization) and net leverage. The company’s net leverage is expected to drop to approximately 3.0x by 2026, down from around 4.0x in 2023. This reduction will be driven by higher EBITDA growth as the company benefits from the continued recovery in its core markets.

In addition, Fitch expects GENM’s financial structure to strengthen by 2025, with a projected improvement in leverage levels compared to earlier forecasts. This reflects confidence in the company’s ability to manage its debt levels while driving revenue growth, further reinforcing the stability of its ‘BBB/Stable’ rating.

Genting New York’s RWN Status: Uncertainty Looms Over Casino License Bid

While Genting Malaysia’s rating remains stable, Genting New York (GENNY) faces greater uncertainty due to its pursuit of a full-scale casino license in New York. Fitch has assigned a ‘Rating Watch Negative’ (RWN) to GENNY, primarily due to the risk that it may not secure this coveted license.

Securing the casino license is crucial for GENNY’s prospects, as it would provide significant advantages in terms of geographic diversification and tax reduction. If successful, GENNY could benefit from a lower tax rate on its gross gaming revenue (GGR), potentially reducing the current 65% tax rate. However, Fitch notes that even if GENNY wins the license, there would be no direct impact on Genting Malaysia’s SCP or IDR, nor on Genting Berhad.

Potential Impact of Losing the Casino License Bid

Should GENNY fail in its bid for the full-scale casino license, the company would face challenges in maintaining its current revenue growth trajectory in the highly competitive New York market. The RWN rating reflects this potential downside risk, which could impact GENNY’s future financial performance. Investors and stakeholders will be closely watching the outcome of the bidding process, as it will have significant implications for the company’s long-term growth and profitability.

Key Factors Influencing Fitch’s Rating Decisions

Several critical factors influenced Fitch’s decision to affirm Genting Malaysia’s ‘BBB/Stable’ IDR and assign the RWN status to GENNY:

• Strong Parental Support: As GENM’s parent company, Genting Berhad has strong incentives to support its subsidiary in times of financial distress. This close relationship bolsters GENM’s IDR, keeping it aligned with Genting Berhad’s rating.
• Robust Performance in Malaysia: The company’s ability to maintain solid revenue growth in its home market, particularly driven by domestic traffic and a rise in international tourists, has been a significant contributor to its positive financial outlook.
• Potential for EBITDA Growth and Deleveraging: Fitch’s projections of lower net leverage and higher EBITDA by 2026 reflect confidence in the company’s ability to improve its financial standing over the next few years.
• Uncertainty Over Genting New York’s Casino License: The RWN status for GENNY highlights the uncertainty surrounding its future in the New York gaming market. Winning the license could enhance its geographic diversification and reduce tax liabilities, but failure to do so could negatively impact its long-term growth prospects.

Genting Malaysia’s Outlook: A Positive Path Forward

Looking ahead, Genting Malaysia’s future appears promising, driven by strong performance in its core Malaysian market and Fitch’s positive forecast for its EBITDA growth and deleveraging efforts. The company’s ability to capitalize on the post-pandemic recovery in domestic and international tourism will continue to support its revenue growth, while ongoing improvements in its financial structure should further strengthen its credit profile.

FAQs About Fitch Ratings Confirms Genting Malaysia’s ‘BBB/Stable’ IDR While Genting New York Faces RWN Status Amid Casino License Uncertainty

1. What is the current IDR of Genting Malaysia and how has it been rated by Fitch?

Fitch Ratings has affirmed Genting Malaysia’s Long-Term Issuer Default Rating (IDR) at ‘BBB/Stable’.

2. What is Genting Malaysia’s Standalone Credit Profile (SCP)?

Genting Malaysia’s Standalone Credit Profile (SCP) is maintained at ‘bbb-’ by Fitch Ratings.

3. What factors influenced Fitch’s decision to affirm Genting Malaysia’s IDR?

Key factors include Genting Malaysia’s strong revenue growth in Malaysia, robust domestic and international tourism, and strong parental support from Genting Berhad.

4. How much did Genting Malaysia’s revenue increase in H1 2024?

Genting Malaysia’s revenue increased by 14% year-on-year in H1 2024, driven by recovering domestic traffic and increased international tourism.

5. What is expected regarding Genting Malaysia’s net leverage by 2026?

Fitch expects Genting Malaysia’s net leverage to drop to around 3.0x by 2026, down from about 4.0x in 2023.

6. What is the status of Genting New York’s casino license bid?

Genting New York (GENNY) has been assigned a Rating Watch Negative (RWN) due to uncertainties regarding its bid for a full-scale casino license in New York.

7. Why is the outcome of Genting New York’s casino license bid important?

Securing the license would enhance GENNY’s geographic diversification and potentially lower its tax rate on gross gaming revenue, impacting its future financial performance.

8. What impact would losing the casino license bid have on Genting New York?

If Genting New York fails to win the casino license, it could face challenges in maintaining revenue growth in a competitive market, affecting its long-term profitability.