S&P Global Ratings is positive on the proposed expansion of the Naga3 integrated gaming development project in Phnom Penh’s Tonle Bassac commune as it is a “win” for NagaCorp Ltd, which is controlled by Tan Sri Chen Lip Keong.
“We expect the project to enhance the Cambodia-based gaming company’s scale and operating performance without significantly straining its cash flow leverage,” it said on Friday.
The ratings agency said it expects NagaCorp (B+/Stable/--) to fund 50 per cent of Naga3’s total development cost with internal cash flows, with the rest coming in via equity infusion from Chen.
NagaCorp estimates the total project cost to cost about $3.52 billion, and will be completed over six years to 2025.
Investment in the Naga3 project is likely to be back-ended, with 25-30 per cent of capital investment over 2019-2021.
“We expect the company’s total capital spending, including maintenance capital expenditure, refurbishment of the Naga1 gaming complex, and the capital outlay for Naga3, to be around $500 million in the next two years.
“We estimate NagaCorp’s EBITDA [earnings before interest, tax, depreciation and amortisation] will increase gradually to $900 million by 2021, from $516 million in 2018. Also, the company has a moderate amount of debt of about $300 million as of December 31, 2018,” it said.
S&P Global Ratings believes NagaCorp has sufficient flexibility to increase its leverage if needed without breaching its downside trigger of a debt-to-EBITDA ratio of four times.
Growing contribution from high net worth customers (70-75 per cent) in 2019-2021 should support EBITDA growth.
It said NagaCorp’s operating cash flows should also increase to $550-$650 million over the period, from about $470 million last year.
“In our view, the company has financial headroom to accommodate the additional capital spending for Naga3 while continuing to pay high dividends, which we estimate will be $250-$300 million annually over the next two to three years.
“In our view, NagaCorp will continue to pursue an aggressive expansion policy. The company announced the Naga3 project just 15 months after it commissioned Naga2,” it said.
Currently, NagaCorp is refurbishing its Naga1 property and completing a gaming project in Vladivostok, Russia.
“Such expansion is opportunistic and necessary for the company’s growth, and is funded at least partly by equity issuance.
“Nevertheless, such an aggressive investment appetite continues to constrain our assessment of NagaCorp’s credit quality,” it said. THE STAR (MALAYSIA)/ANN