According to a Business Times article published earlier today, Genting Singapore PLC (SGX: G13) has plans to borrow S$2.25 billion worth of loans from banks for refinancing of existing borrowings and general corporate purposes.
There’s no official announcement from Genting Singapore on the matter just yet as of the time of writing (14:15 pm), but we can still take a look at how the company’s finances may change if the story regarding the loan turns out to be true.
As of 31 December 2014, the company has total borrowings of S$1.7 billion, of which S$518.7 million is coming due within a year.
These borrowing levels somewhat pale in comparison to Genting Singapore’s cash and cash equivalents of S$3.69 billion as of the same date. That’s also not to mention the company’s S$1.3 billion worth of available-for-sale financial assets.
Moreover, Genting Singapore has been able to generate positive free cash flow amounting to an average of S$1.13 billion per year since 2010.
With these – a strong balance sheet and ability to produce cash flow – as a backdrop, there really is little need for the company to want to borrow money now in order to refinance existing borrowings.
How about for general corporate purposes?
On the flip side, Genting Singapore does require lots of funds for its future expansion plans.
For instance, the company is developing a new hotel in Singapore’s Jurong Lake District. It has also just recently started development works for its Resorts World Jeju project in South Korea’s Jeju Island. The 2.5 million sqm integrated resort is modelled after Genting Singapore’s current flagship, Resorts World Sentosa.
In addition, Genting Singapore has indicated that it will be willing to invest in Japan’s casino scene if such gaming venues are legalized in the country.
These projects will require a large pool of funds in order for the company to turn its ambitions into reality. If the company is raising capital right now, it might mean that the firm’s expansion plans are still very much intact.
Impacts on finances
How will the potential S$2.25 billion loan impact the company’s balance sheet and bottom-line though? Even for a firm the size of Genting Singapore, S$2.25 billion is not a trivial amount.
The company is currently in a net cash position (as alluded to earlier) with a total debt to equity ratio of 17.6%. If the plans for the loan are indeed true, and the company borrows an additional S$2.25 billion, Genting Singapore’s total debt to equity ratio would jump significantly to 40.7% (on a pro-forma basis).
In addition, the interest costs for the company might more than double from its current level of S$42 million a year. That can really eat into Genting Singapore’s bottom-line given that its profit in 2014 was ‘just’ S$517 million.
According to the Business Times article, the roadshow for the fund raising event will start on 5 March 2015, which is just a few days away. So even if there is no announcement from Genting Singapore, it will just be a matter of time before we soon know for sure if the company wants to take up an additional S$2.25 billion in borrowings.
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