Moody’s is dashing KCC Corp’s dream of entering South Korea’s casino industry.
The chemicals maker announced early this week that it is entering a venture with Mohegan Sun to build a $5 billion integrated resort complex on Yeongjong Island. KCC decided to invest $176 million (KRW203 billion) for a 24.5 percent stake in the Connecticut-based casino operator’s Inspire Integrated Resort Co. Ltd., which plans to run the casino in the Incheon Free Economic Zone.
Mohegan Sun President Bobby Soper has already expressed his excitement over the new partnership, telling GGRAsia in an email that the two companies “are aligned in our values, as we both believe in the great importance of operating with transparency, integrity and commitment to the community.”
However, it’s still too early to pop the champagne corks.
Moody’s Investors Service is putting a damper on celebrations, saying that KCC’s plan will only bring heartbreak to the company.
“KCC’s investment in the casino business, if it materializes, will be a credit negative, given the casino project’s uncertainty and execution risk,” Moody’s VP and senior analyst Wan Hee Yoo said in a note.
The bond credit rating business said the company’s investment, if it materializes on a debt-funded basis, will only pressure KCC’s financial profile.
In addition, Moody’s also pointed out that KCC’s financial profile has weakened this year due to “its sizable capital expenditure as well as the approximate KRW700 billion investment it made to acquire stakes in Samsung C&T Corporation in June.”
“AS a result, absent any deleveraging activities, Moody’s expects the company’s adjusted debt/EBITDA to rise to about 3.5 times to 3.7 times by 2016 from 2.4 times in 2014 and retained cash flow/net debt to be around 30 percent compared with the previous net cash position,” stated the financial institution.
However, those concerns were “partly mitigated” by KCC’s large and liquid non-core equity stakes that are worth an estimated KRW3.3 trillion, which Moody’s said will “provide a considerable cushion against adverse developments at its operations.”
KCC’s investment is still subject to the South Korean government’s approval on the Yeongjong casino project, which is expected to be finalized over the next three months.
Last August, the Ministry of Culture, Sports and Tourism started accepting requests for proposal for nine sites: Ungdong in Jinhae Free Economic Zone of Gyeongsangnam-do, a redevelopment area in Busan North Port, Yeosu Gyeongdo Tourism Complex in Jeollanam and six sites within Incheon.
So far, there are already two approved projects for the Incheon Free Economic Zone—the Paradise City joint venture, which is already being developed, and the joint venture of Caesars Entertainment and Lippo Ltd., which has yet to break ground.