KUALA LUMPUR: RAM Rating Services Bhd has lifted the Rating Watch (with a negative outlook) on the ratings of RGB International Bhd's RM200 million Commercial Papers/Medium-Term Notes Programme (2007/2014) (CP/MTN).
Below is the statement issued by RAM Ratings on Thursday, Oct 21 on RGB (formerly Dreamgate Corp Bhd).
At the same time, the respective long- and short-term ratings have been downgraded, from A1 and P1 to BBB3 and P3; the long-term rating carries a negative outlook. RGB is involved in sales and marketing, the provision of technical support, as well as maintenance and management services for gaming and amusement machines/equipment.
The Rating Watch had been placed on 22 September 2010, prompted by our concerns over RGB International's deteriorating financial and liquidity profiles following delays and changes in the proposed disposals of its 40%-interest in Chateau De Bavet (Chateau) casino and the slot machines in 5 Macau Technical Support and Management Services (TSM) concessions. The proceeds from the disposals had been earmarked for the partial repayment (RM49 million) of outstanding CP by end-September 2010.
The rating downgrade is premised on RGB International's very tight liquidity position, deteriorating balance sheet strength and poorer-than-expected recovery of its cashflow-protection measures. RGB International's funds from operations had thinned substantially following the regulatory setback in Cambodia.
The Group continued to chart slower-than-expected progress in replacing its lost income due to persistent delays in the redeployment of the affected slot machines and the commencement of its new TSM outlets.
Meanwhile, with the proposed asset disposals failing to materialise according to the terms and timeframe initially envisaged, the Group will not be able to improve its financial position in the near term although we note that the Group has made some progress with potential buyers for its proposed asset disposals.
RGB International's liquidity position is tight with only cash balances of about RM30.14 million against RM153.75 million of short-term debts as at end-June 2010. The Group's short-term debts mainly comprised non-underwritten CP. As such, its CP remains susceptible to rollover risk. At the same time, we note that the Group is highly dependent on the continued support of its suppliers, as observed from its lengthier payables cycle since 2009.
'The Group's weak operating performance for 1H FYE 31 December 2010 (1H FY Dec 2010) brought its annualised funds from operations (FFO) debt coverage ratio to only 0.14 times as at end-June 2010. As plans to reduce its borrowings have fallen through, its FFO debt coverage is unlikely to recover to about 0.4 times in FY Dec 2010, as previously envisaged,' observes Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings.
Meanwhile, the Group has been suffering pre-tax losses for the past 2 years, depressed by impairment expenses and losses from its TSM division after the closure of some TSM concessions in Cambodia.
'Given that its losses are likely to persist over the next few years, RGB International's balance sheet is expected to weaken further, with its gearing ratio envisaged to rise to about 2 times in FY Dec 2011,'' adds Kevin.
In the meantime, the ratings remain supported by RGB International's stable concession revenues over the longer term from its TSM concessions.
The Group's good rapport with its customers and suppliers is also expected to give it an edge over the longer term. Given RGB International's presence in various countries, it is less vulnerable to changes in regulatory conditions in any particular nation.
The negative outlook on RGB International's long-term rating reflects our concern that the Group's financial profile may deteriorate further with the continued delays in its proposed asset disposals, the redeployment of affected slot machines and if its TSM concessions continue to underperform. Should this happen, there may be further downward pressure on its ratings.
However, the outlook may be reverted to stable should the Group be able to address its immediate liquidity strain and demonstrate sustainable improvements in its business and financial profiles.
''
Below is the statement issued by RAM Ratings on Thursday, Oct 21 on RGB (formerly Dreamgate Corp Bhd).
At the same time, the respective long- and short-term ratings have been downgraded, from A1 and P1 to BBB3 and P3; the long-term rating carries a negative outlook. RGB is involved in sales and marketing, the provision of technical support, as well as maintenance and management services for gaming and amusement machines/equipment.
The Rating Watch had been placed on 22 September 2010, prompted by our concerns over RGB International's deteriorating financial and liquidity profiles following delays and changes in the proposed disposals of its 40%-interest in Chateau De Bavet (Chateau) casino and the slot machines in 5 Macau Technical Support and Management Services (TSM) concessions. The proceeds from the disposals had been earmarked for the partial repayment (RM49 million) of outstanding CP by end-September 2010.
The rating downgrade is premised on RGB International's very tight liquidity position, deteriorating balance sheet strength and poorer-than-expected recovery of its cashflow-protection measures. RGB International's funds from operations had thinned substantially following the regulatory setback in Cambodia.
The Group continued to chart slower-than-expected progress in replacing its lost income due to persistent delays in the redeployment of the affected slot machines and the commencement of its new TSM outlets.
Meanwhile, with the proposed asset disposals failing to materialise according to the terms and timeframe initially envisaged, the Group will not be able to improve its financial position in the near term although we note that the Group has made some progress with potential buyers for its proposed asset disposals.
RGB International's liquidity position is tight with only cash balances of about RM30.14 million against RM153.75 million of short-term debts as at end-June 2010. The Group's short-term debts mainly comprised non-underwritten CP. As such, its CP remains susceptible to rollover risk. At the same time, we note that the Group is highly dependent on the continued support of its suppliers, as observed from its lengthier payables cycle since 2009.
'The Group's weak operating performance for 1H FYE 31 December 2010 (1H FY Dec 2010) brought its annualised funds from operations (FFO) debt coverage ratio to only 0.14 times as at end-June 2010. As plans to reduce its borrowings have fallen through, its FFO debt coverage is unlikely to recover to about 0.4 times in FY Dec 2010, as previously envisaged,' observes Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings.
Meanwhile, the Group has been suffering pre-tax losses for the past 2 years, depressed by impairment expenses and losses from its TSM division after the closure of some TSM concessions in Cambodia.
'Given that its losses are likely to persist over the next few years, RGB International's balance sheet is expected to weaken further, with its gearing ratio envisaged to rise to about 2 times in FY Dec 2011,'' adds Kevin.
In the meantime, the ratings remain supported by RGB International's stable concession revenues over the longer term from its TSM concessions.
The Group's good rapport with its customers and suppliers is also expected to give it an edge over the longer term. Given RGB International's presence in various countries, it is less vulnerable to changes in regulatory conditions in any particular nation.
The negative outlook on RGB International's long-term rating reflects our concern that the Group's financial profile may deteriorate further with the continued delays in its proposed asset disposals, the redeployment of affected slot machines and if its TSM concessions continue to underperform. Should this happen, there may be further downward pressure on its ratings.
However, the outlook may be reverted to stable should the Group be able to address its immediate liquidity strain and demonstrate sustainable improvements in its business and financial profiles.
''
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