Saturday, December 18, 2010

RAM Ratings puts RGB Intl on negative Rating Watch

KUALA LUMPUR: RAM Rating Services Bhd has placed the BBB3/P3 ratings of RGB International Bhd's RM97 million debt notes on Rating Watch, with a negative outlook.

The rating agency said on Friday, Dec 17 the debt notes involved its commercial papers/medium-term notes programme (2007/2014) (CP/MTN).

RGB International, formerly Dreamgate Corp Bhd,'' is involved in the sales and marketing, provision of technical support, as well as maintenance and management services for gaming and amusement equipment.

'The Rating Watch reflects our concerns about the Group's business prospects in the Philippines, which are expected to have negative implications on RGB International's credit profile,' it said.

RAM Ratings said for the first nine months of FYE Dec 31, 2010 (FY Dec 2010), the Philippines contributed about 40% to the group's technical support and management services (TSM) division's revenue.

'We understand that RGB International experienced setbacks in the opening of 5 of its new TSM concessions in the Philippines (initially scheduled for opening by end-2010) as licences granted for these VIP Clubs (slot clubs) are currently being reviewed by the new board of Philippine Amusement and Gaming Corporation (PAGCOR),' it said.

Casino operations in the Philippines are governed and mostly operated by the government-owned PAGCOR.

On top of this, RGB International has been asked to remove its slot machines from three of its TSM concessions in Manila due to underperformance.

Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings said the delayed opening of its new TSM concessions in the Philippines will further set back the redeployment of RGB International's slot machines affected by the change in Cambodia's gambling regulations in 2008/09.

'The mobilisation exercise had initially been expected to be completed by end-2009; this is now likely to be held up until 2011. Compounding matters further, the Group now has to redeploy another 200 slot machines affected by its three TSM concessions in the Philippines.

'Looking ahead, RAM Ratings does not discount future changes in rulings that could disrupt the Group's business in the Philippines,' he said.

All these developments will further depress RGB International's financial performance; it is likely to record poorer-than-expected cashflow-protection metrics in FY Dec 2011, with a larger-than-anticipated pre-tax loss.

RAM Ratings said it remained concerned about the Group's tight liquidity position, with only about RM24.33 million of cash balances against RM133.61 million of short-term borrowings as at end-September 2010.

RAM Ratings said it was currently reassessing RGB International's credit profile based on the recent developments, and will take the appropriate rating action in due course.

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