Fitch Ratings says Malaysia’s budget for 2019 is likely to have a “limited impact” only on Genting Bhd, the parent company of Genting Malaysia Bhd. The latter operates Resort World Genting (pictured) in Malaysia and operates casinos in the United States, the Bahamas and the United Kingdom.
Malaysian Finance Minister Im Kwan-eng announced in a budget speech earlier this month that annual fees for casino licenses would rise from $120 million to $150 million ($36 million), while tariffs on total revenue from gaming would rise from 25% to 35%.
In a report this week, the ratings agency said it expected the increase to weigh on the group’s bottom line, although the impact would eventually be offset by a spending review.
Fitch estimated Genting Bhd’s consolidated gains before interest, taxation, depreciation, amortisation, restructuring or rent costs (EBITDAR) would fall in the range of 8 to 9%, while net debt/EBITDAR would be 0.6 times in 2019 and 0.9 times in 2020, respectively, up from previous expectations of 0.5 times and 0.7 times.
“This assumes that Genting Malaysia Bhd’s review of its marketing strategy and cost structure will result in a 10 percentage point increase in tax rates on gaming revenue before considering potential cost savings,” it added.
Last week, Genting Malaysia said it was “evaluating the overall impact” of additional taxes announced by the federal government. The statement added that the company would take “appropriate next steps” that included “a review of marketing spending and cost structures to mitigate the impact of the tax increases”.
Fitch said in a recent report that Genting Bhd’s financial profile fits the agency’s leverage expectations. However, the group said its financial flexibility would be “reduced” as it was already working to build an Asian-themed resort world Las Vegas in Las Vegas, Nevada. A $4 billion (W4.5 trillion) price tag has been mentioned before for the project.
However, ratings agency Moody’s Investors Service says high taxes, fees and levies on the gaming industry are negative credits for Genting Group.
“These changes, especially the increase of up to 35% in casino tariffs, are negative for Genting Bhd as revenue contributions from Malaysia’s leisure and hospitality sectors will fall and consequently weaken the group’s leverage,” Moody’s said in a report last week.
The ratings agency expects Genting Bhd’s EBITDA to fall by about 650 million yuan in 2019. The decline will erode initial gains the group can achieve next year after the completion of the Genting Integrated Tourism Plan (GITP), which aims to renovate flagship gaming venues near Kuala Lumpur, Malaysia’s capital, Moody’s said.
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