Moody’s says 35% casino duties credit negative for Genting

The casino duties rise is credit negative as earnings contribution from its local leisure and hospitality segment will fall


THE increase in gaming taxes, fees and levies as announced in Budget 2019 is deemed as “credit negative” for Genting Malaysia Bhd, according to Moody’s Investors Service.

In a statement, the international credit rating agency said Genting Bhd is expected to contribute more in casino duties as the latter is currently paying up to 25% on gaming revenue.

“The changes, in particular the increase in casino duties of up to 35%, is credit negative for Genting because earnings contribution from its Malaysia leisure and hospitality segment will fall and consequently weaken the group’s leverage,” it said yesterday.

Moody’s also said Genting’s earnings before interest, taxes, depreciation and amortisation (Ebitda) are likely to decline by around RM650 million in 2019 under a stressed scenario, where casino duties of an additional 10% on gaming revenue starts from Jan 1, 2019.

It added that the decline will erode the expected initial gains the group will achieve in 2019, following the completion of its Genting Integrated Tourism Plan (GITP) at Resorts World Genting, Malaysia’s sole land-based casino.

GITP, which commenced in 2013, is a development that will enhance Resorts World Genting with additional food and beverage offerings, and entertainment and retail areas; a new indoor theme park; and rebuilding of the outdoor theme park as a 20th Century Fox World theme park.

As such, Moody’s expects Genting’s credit metrics to weaken, but remain within its Baa1 rating parameters.

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The credit rating agency said the leverage, as measured by debt/Ebitda, is expected to increase to 3.8 times in 2019 from 3.5 times in 2018, while retained cashflow/debt will likely weaken to 12% from 13% over the same period.

Although Genting’s credit metrics are expected to remain within their rating parameters of Baa1, there is limited headroom to accommodate an increase in debt until construction of Resorts World Las Vegas (RWLV) completes and the new integrated resort starts contributing to the group’s earnings.

The groundbreaking of RWLV took place in May 2015 and its first phase of development is currently underway with the completion targeted for 2020.

In an exchange filing on Wednesday, Genting Malaysia said the company has been advised by the Finance Ministry that the casino licence fee will be revised from RM120 million to RM150 million per annum, while the casino duties will be revised up to 35%.

It added that the hike on casino duties represents a 10% increase over existing duty rates.

“Genting Malaysia is assessing the full implications of the additional taxes and will take the appropriate next course of action, which includes a review of its marketing expenditure and cost structure to mitigate the impact of the tax increases,” the company stated.

Meanwhile, Moody’s said in another statement that Malaysia’s 2019 budget indicates greater transparency in the country’s public accounts and a focus on inclusive growth, which if sustained, will be credit positive.

“However, in the near term, a still high fiscal deficit and heightened reliance on volatile oil-related revenues will weaken Malaysia’s fiscal profile, a credit negative,” it noted.

The budget targets a fiscal deficit of 3.4% of GDP for 2019, slightly narrower than the latest official estimates of 3.7% for 2018.

However, projections for 2018 are above original budgeted targets of 2.8% of GDP.

Budget 2019 also indicates that Malaysia’s high debt levels are likely to persist for longer than expected as deficits are likely to remain above 3% of GDP until 2020.