Refinancing project debt.
Genting Singapore has recently signed a commitment letter to refinance S$4.1925bn of RWS project debt facilities obtained in 2008. The proposed refinancing is for the exact similar amount, comprising of S$3.5bn of term loans, S$0.5bn in revolving credit facilities and S$192.5m banker's guarantee facility. Tenure of the term loan remains 7-year, i.e.,from 2011-2018 (previously 2008-2015).
The refinancing exercise aimed to achieve the followings:-
(1) Lower funding cost to Singapore Dollar Swap Offer Rate (SOR) + 1.2% to 1.6% (depending on the debt/EBITDA ratio) from SOR +1.75% currently. However, given existing interest rate swap arrangement, RWS effective funding cost for its loan averages at about 4.75%. There will be an associated cost to unwind the SWAP and any interest savings is only expected to kick in from FY12 onwards. Assuming effective funding cost of 2.4%, the refinancing savings could enhance FY12E PBT projection by 3.7%.
(2) Remove/ease stringent project debt restrictions imposed on RWS
(3) To stretch out last repayment in 2015 to progressive payment over 2015-2018. The progressive repayment for 2011 to 2014 remains the same. The exact repayment structure was not disclosed.
Given that near term debt repayment structure remains the same and with Genting Singapore eyeing for Integrated Resort investment opportunity in Japan, we do not think the above refinancing would significantly change the company's dividend policy. Maintain buy and TP of S$2.60 on 14x 2011 EV/EBITDA. Key risks: prolong delay in junket licensing, regulatory changes and lower than expected gaming market share.
(Source : DB Research)