Fitch has affirmed the credit ratings of casino operator Genting Singapore and its parent Genting Bhd at A- with a stable outlook.
Despite facing headwinds from declining revenues, lower Ebitda - or operating profit - margins, deteriorating VIP business and impairment of credit extended to VIP customers, Genting Singapore has maintained a net cash position owing to its stable mass gaming business, Fitch said. It rated Genting Singapore's $2.3 billion perpetual capital securities at BBB.
This is despite rival Marina Bay Sands (MBS) cannibalising Genting Singapore's market share, thanks to its proximity to the Central Business District, which gives MBS an advantage in the Mice (meetings, incentives, conferences and events) segment.
MBS' market share rose to 60 per cent of gross gaming revenue in 2015, up from 50 per cent in 2012, while Genting Singapore's share fell to 40 per cent, Fitch credit analyst Nandini Vijayaraghavan noted.
The Singapore Government awarded 30-year licences, including 10-year exclusivity periods, to both Genting Singapore and MBS. But Genting Singapore's market position, scale and profitability would weaken if the Government grants additional licences on expiry of the exclusivity period, Fitch warned.
Still, the Government has not signalled the granting of additional licences to date, and the ratings agency believes that risk is low, given concerns over problem gambling.
Meanwhile, Malaysian gaming conglomerate Genting Bhd's ratings reflect its strong market position in the gaming markets and diversification in the oil palm plantations and energy sectors.
The outlook for both Genting Bhd and Genting Singapore - its 53 per cent-owned subsidiary - is stable because existing barriers to entry in both countries mean relatively stable cash flow, Fitch said.
Genting Bhd maintained its net cash position as of March 31, despite lower hold percentage in the premium players business, a higher number of bad debts written off, and the impact of the 6 per cent goods and services tax levied in Malaysia last April. Hold percentages or rates refer to the portion retained by the casino for every $1 bet on the table.
UOB KayHian analyst Vincent Khoo was upbeat about Genting Singapore, noting that, after a series of disappointing results, it "finally achieved a turning point in the first quarter, gaining gross gaming revenue (GGR) market share to about 46 per cent, the highest since fourth quarter 2014". GGR refers to the amount wagered minus the winnings returned to players.
"With Genting Singapore prudently curtailing its credit extension to creditworthy VIP players since the second half of 2014, and receivables having come down to a more manageable level in the first quarter, Ebitda is expected to improve from the second half of the year, even without a meaningful growth in GGR," Mr Khoo said.