Junket crackdown, slow COVID recovery creating credit risk for NagaCorp: Moody’s

October 13, 2022 Emerging Markets Industry Updates

Moody’s Investors Service has warned that Hong Kong-listed NagaCorp, operator of Cambodian integrated resort NagaWorld, faces significant refinancing risks in the coming years as regulatory scrutiny and China’s junket crackdown slow the company’s COVID recovery trajectory.

Moody’s on Wednesday downgraded NagaCorp’s corporate family rating as well as the senior unsecured rating of the company’s US dollar bond from “B1” to “B2” amid concerns over its potential sources of financing in the coming years.

While the ratings agency expects NagaWorld to generate sufficient cash flow to cover all expenses over the next two years, it points to a US$545 million bond maturity in mid-2024 as being of significant concern due to “limited sources of liquidity given its lack of bank facilities and divestible non-core assets.”

“The downgrade reflects NagaCorp’s slower-than-expected operational recovery such that the company will likely require external financing to repay its outstanding US$545 million bond maturing in July 2024,” states Moody’s analyst, Yu Sheng Tay.

“The refinancing risk is exacerbated by tight funding conditions in the current economic environment and limited sources of liquidity for the company.”

Moody’s said it expects NagaCorp to generate EBITDA of around US$252 million in 2022 and US$352 million in 2023, signficantly improved from the US$16 million generated in 2021.

This, however, still lags well behind the US$672 million in EBITDA the company reported in 2019, prior to the COVID-19 pandemic.

“The slower recovery is attributed to increasing regulatory scrutiny and clampdown on gaming promoters, which drove a significant portion of the revenues for NagaCorp historically,” Moody’s said in its note.

“Moody’s expects the company to generate sufficient operating cash flow to meet its cash needs through June 2024. However, the company will likely require external financing to repay its US-dollar bond on 6 July 2024.

“Moody’s believes the company’s ability to raise external financing is challenged given the tight funding conditions in the current economic environment.”

The agency added that NagaCorp may be able to preserve liquidity by reducing its development capital expenditure for the Naga 3 expansion project and limiting cash dividends.