Moody's says up to US$80 million in loans it offered to casino operator Nagakov in a trust founded by founder and controlling shareholder Sir Chen Lip are "credit positive" for dealing with the maturity of corporate bonds in 2024.
However, the ratings agency noted that Nagakov, the operator of the Nagarwold gaming complex (pictured, Nagar2) in Phnom Penh, Cambodia's capital, was "exposed to refinancing risks" regarding generating "sufficient free cash flow to repay bonds in 2024." Moody's said this was likely dependent on continued earnings recovery and "low discretionary spending."
The unsecured loan carries an annual interest rate of 8.0% over two years. This will help Nagakov, who has a longstanding casino monopoly in Phnom Penh, "financed and/or discharged" some of the $472.2 million outstanding notes due in July 2024, the company said in a filing on Tuesday.
"As of September 30, Nagakov's cash and cash equivalents were $298 million. Assuming the company maintains a $40 million working cash balance and withdraws $80 million in full shareholder loans, it should generate $135 million in free cash flow over the next three quarters to cover the maturity of the bond," Moody's said in a note Thursday
The rating agency said it expects Nagakov's earnings to improve over the next 12 months with the help of the "seasonal peak" in Cambodian tourist arrivals, which is typically seen in the first and fourth quarters of the regular trading year.
Moody's said it had assumed Nagakov could generate about $350 million in interest, taxation and depreciation (EBITDA) this year and $485 million in 2024, but "a slower-than-expected recovery will put pressure on Nagakov's liquidity."
Nagakov said in an October update to the Hong Kong Exchange that it reported a $215.4 million EBITDA for the first nine months of 2023.
Naga Corp said in June that further completion of the Naga World complex, known as Naga 3, was postponed by four years to September 2029.
"We expect [Nagakov] to spend approximately $40 million in development capital over the next 12 months, from October 2023 to September 2024," Moody's said of Nagakov. "At the same time, we do not expect to pay any cash dividends until we resolve the bond maturity. Nagakov has not paid any cash dividends since 2021."
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