Genting Singapore’s Strong Finances Could Be Advantageous in Japan

Posted on: June 7, 2019, 08:35h. 

Last updated on: October 9, 2020, 09:02h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Genting Singapore Ltd. is one of seven major casino operators vying for one of Japan’s coveted gaming licenses. The group’s strong balance sheet could be an advantage in that quest.

Genting Singapore casino Japan license
Genting Singapore’s finances are strong, and that is expected to appeal to Japanese officials responsible for issuing the country’s three casino licenses. (Image: Genting Sinapore)

Maybank Kim Eng Holdings Ltd regional gaming analyst Samuel Yin Shao Yang believes the Japanese government will carefully consider the financial sturdiness of companies bidding for licenses in the country and that Genting Singapore’s solid cash position puts it in the driver’s seat to eventually operate in the world’s third-largest economy.

While noting many US-based casino operators carry debt, “Genting Singapore is huge in net cash,” said Yang in an interview with The Edge Markets. “For that, the Japanese would probably prefer them.”

At the end of the first quarter, Genting Singapore had $754.40 million in free cash flow. The company $3.14 billion in cash on hand compared to $761.73 million in debt, giving it a net cash position of $2.38 billion.

US Rivals Carry Big Debt

In addition to Genting, the companies competing for Japan licenses include Galaxy Entertainment, Las Vegas Sands, Melco Resorts, MGM Resorts, Wynn Resorts, and a local alliance from Osaka.

Sands, the largest US-based casino operator, has debt burden of $11.9 billion. MGM and Wynn Resorts carry liabilities of $15 billion and $9.5 billion, respectively.

Yang said Japan wants to follow the Singapore casino model. While the island city-state is home to just two casinos, operators there have been able to maximize operating profitability while limiting some of the downside social risks, including increased crime and corruption. Though Yang did not say as much, Japan’s efforts to employ the Singapore model could also benefit Sands because it runs Marina Bay Sands, a property that is viewed as one of the company’s crown jewels.

While Sands may carry significantly more debt than Genting, analysts in the US do not view the Las Vegas-based company as highly leveraged and they believe Sands can easily meet interest obligations on its liabilities.

Still, Yang said it is possible Japanese regulators will remember that Sands paused construction on the Sands Cotai Central in Macau in 2009 following the global financial crisis (GFC).

“This time around, given that there may be another GFC brewing with the ongoing trade war, the Japanese probably want to work with someone who is in a net cash position,” said the analyst. “So, Genting will be in a favorable position.”

Not Practicing What It Preaches

Japan’s potential insistence on casino companies wishing to operate not carry big debt loads runs counter the country’s own fiscal practices. The country, Asia’s second-largest economy behind China, is a profligate borrower with obligations that are equivalent to 250 percent of its GDP. That is one of the worst debt-to-GDP ratios among major developed economies.

While Japan’s government is a big debtor, the model officials overseeing the country’s foray into casino gaming could be looking to emulate is from the nation’s corporate sector. Japanese companies are among top free cash generators in the developed world and the return on equity (ROE), net income divided by shareholder equity, for Japan’s benchmark Topix Index, is at its highest levels in decades.