KUALA LUMPUR (May 7): Genting Malaysia Bhd's (KL:GENM) takeover of Genting Empire Resorts, which owns gaming properties in New York through Empire Resorts (ERI), is seen as credit negative by CreditSights. This is due to the increased debt to support ERI's weak earnings outlook and concerns over related-party transactions (RPTs).
GENM signed an agreement to acquire a 51% stake in Genting Empire Resorts from Kien Huat Realty III Ltd, owned by Genting promoters. The acquisition will increase GENM’s ownership to 100%. CreditSights is concerned about RPTs due to GENM's history with such deals, some of which were unfavorable to creditors. The deal also raises questions about its fairness.
While the acquisition strengthens GENM’s New York operations, ERI’s earnings outlook remains weak, pressured by competition and profit losses at its two New York resorts. ERI’s total debt is estimated at RM1.3 billion (US$300 million), with earnings before interest, taxes, depreciation and amortisation (Ebitda) of US$27 million for nine-month 2024 and gross leverage of 11 times.
CreditSights said the deal will increase GENM’s debt by US$300 million and worsen its leverage metrics by 0.3 to 0.4 times. GENM’s cash will decrease by US$41 million. The acquisition, to be completed by the second quarter of 2025, will be funded by GENM’s cash and cash flow.
It expects ongoing support for ERI from GENM, as it has invested US$725 million in ERI and views it as key to its New York expansion. A default at ERI would damage Genting Bhd’s (KL:GENTING) reputation, especially as it expands in New York and Singapore, lowering the refinancing risk for ERI’s US$300 million bond due in 2026.
CreditSights said ERI’s situation is different from Genting Hong Kong (GENHK), which defaulted in 2020. GENM had exited GENHK in 2016 and did not consider it strategic. In contrast, GENM steadily increased its stake in ERI, which it sees as strategically important.
CreditSights said despite these concerns it has an "outperform" call on GENM bonds and a “market perform” call on Genting’s bonds.
It said GENM’s 2031 bonds are cheaper than similar bonds, and they are expected to rise by 10-15 basis points, supporting the "outperform" rating. It said GENM’s strong presence in Malaysia and potential growth from a New York casino could balance out its debt and governance issues.
On Genting’s 2027 bonds, it said they are fairly priced compared to peers due to its strong diversification and the expected New York casino, which also helps offset governance risks.