On the morning of Oct 13, trading in the shares of Genting and its 49.36% associate company Genting Malaysia Bhd (GenM)was suspended. That evening, Genting announced a voluntary general offer (VGO) for GenM shares at RM2.35 apiece — an exercise that would see it incur a debt of RM6.7 billion ($2.05 billion).
The fact that Genting would take GenM private had always been on the cards because the latter had long been deemed “low hanging fruit” among the other companies in the group for it to unlock value.
But the unattractive exit offer made to the minority shareholders, considering that GenM is largely held by institutions that probably had held its shares at between RM2.50 and RM3 apiece, came as a surprise.
Nevertheless, this audacious bid for GenM is proving to be a bounty for Genting, which is substantially owned by the Lim family through Kien Huat Realty Sdn Bhd. In the days following the announcement, Genting’s share price has risen more than 20%.
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According to Genting, the reason for wanting to take GenM private is to “demonstrate control” in accordance with accounting regulations and enhance the financial profile of GenM should it be successful in one of the bids for an integrated resort and casino in New York City.
“The offer is in line to achieve more than 50% and secure statutory control over GenM,” Genting stated in its VGO announcement.
What’s perplexing is that even before the VGO, Genting had always consolidated GenM’s earnings and cash flow into its books, even though it only held 49.36% of the company. This is because it controls the management of GenM and passes the test of “control”.
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So, what could be so pressing that required Genting to secure statutory control over GenM now? Why not just buy more GenM shares on the market and trigger a mandatory general offer, instead of embarking on a VGO?
An investment banker says the level of scrutiny by the New York gaming authorities may be stringent, necessitating Genting to have more than 50% equity interest in GenM to demonstrate that it has statutory control under accounting rules.
“As for the VGO, Genting is probably on a fishing expedition to try and see how much acceptance it will get. The immediate objective is to get more than 50%. If Genting gets enough to take GenM private, it will be a bonus for it,” says the investment banker.
Analysts have upgraded their recommendations on Genting — up to RM6 a share — for a myriad of reasons.
First, Genting is largely undervalued compared to the other companies in the group. The value of its 53% stake in Genting Singapore (GenS) is more than its entire market capitalisation on Bursa Malaysia.
Second, Genting’s price for GenM does not take into account several developments that would lead to a rerating of the latter. Among them is the potential sale of a piece of land in Miami and GenM being one of the successful bidders for an integrated resort and casino in downtown New York.
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According to a note from Maybank Investment Bank, if Genting is successful in privatising GenM, its sum-of-parts valuation would be RM4.25 per share. Goldman Sachs has a target price of RM6 for Genting.
According to a fund manager, the euphoria over Genting’s proposal to take over GenM at a relatively low price is good for the former. “What is bad for GenM is good for Genting. But overall, nothing has changed for Genting. The management is still very much the same,” he says.
The optimism about Genting now is different from that in August after it announced the results for the first six months of the year. The company did not declare any dividends, citing cash conservation to reduce debts, which stand at more than RM38.6 billion, as among the reasons.
The pessimism about Genting stemmed from the non-declaration of dividends and poor performance of Resorts World Sentosa in Singapore and Resorts World Las Vegas in the US.
Resorts World Sentosa continues to lose market share to rival casino operator Marina Bay Sands. This was because Resorts World Sentosa was undergoing upgrading works under the $6.7 billion RWS 2.0 project, where several new attractions were being built to entice tourist arrivals to the integrated resort.
Weakening financial metrics
As for Resorts World Las Vegas, it has yet to produce the desired results since opening in June 2021, after six years of construction at a cost of US$4.5 billion ($5.8 billion). In its latest quarterly results, Genting says Resorts World Las Vegas occupancy rate and average daily rate for the second quarter of this year were down from the same period a year earlier.
The overriding concern about Genting is its RM38.6 billion debt that came about largely due to the huge investments in Resorts World Las Vegas starting in 2014. Its debt-to-ebitda (earnings before interest, tax, depreciation and amortisation) ratio is more than 4.2 times. The acceptable level is under three times, while anything that is two times or below is considered healthy.
A stark warning about Genting’s rising borrowings comes from Moody’s, which has placed Genting, Genting Overseas Holdings (GOHL) and GenS on review for a downgrade. GOHL is the immediate holding company controlling 53% of GenS.
According to Moody’s, Genting’s adjusted debt-to-ebitda ratio will rise to about 5.1 times in 2025 if the proposed privatisation of GenM is completed and funded by borrowings.
“Our projections exclude the potential US$5.5 billion of investments associated with a possible New York casino licence win, which remains uncertain. Genting’s credit metrics will likely deteriorate further if the company secures the licence,” it says in a statement issued last week.
Moody’s has warned that Genting’s rating will likely face a multi-notch downgrade if its financial profile weakens because of a material increase in debt that results in higher leverage and the absence of any corresponding plan to reduce it.
The 74-year-old Lim, who is executive chairman of Genting, is certainly well aware of the weakening financial metrics and how things could go wrong if the company’s persistently high debt level is not addressed.
Not too long ago in January 2022, the Lim family had to place Genting Hong Kong in liquidation when it could not meet its debt obligations following the collapse of its cruise business due to the Covid-19 pandemic. The cruise business was something that Lim himself had built. The liquidation of Genting Hong Kong proved that the group’s recession-proof casino business was not invincible to unexpected events.
Genting’s VGO for GenM underlines its resolve to secure one of the casino licences in New York. In hindsight, perhaps it does not have a choice because GenM already has three other casinos in New York state — one in New York City and two further upstate. If it is left out of the biggest casino in New York, it will lose control of the market there.
But securing the casino licence in New York is one thing. Successfully completing the project and reducing the risk of debt is quite another. It is a tough balancing act, and history has shown that the “house does not win” all the time.
Genting details VGO rationale, plans for Las Vegas and Singapore operations
In response to queries from The Edge Malaysia, Genting Bhd says its primary reason for making a voluntary general offer (VGO) for Genting Malaysia Bhd (GenM) is to cement its position as the latter expands abroad and to better support its growth initiatives.
At the same time, says the group, it is constantly reviewing the consolidation of its US operations, which are held under different subsidiaries at the moment.
Still, Genting has no plan to list Resorts World Las Vegas in the immediate term or reduce its stake in Genting Singapore, which remains a core strategic asset.
The following is Genting’s full response to our questions:
In relation to the VGO for GenM, Genting Bhd has had a less than 50% stake in the company for a long time now. Is the sudden need to ensure that Genting has more than 50% equity interest in GenM to indicate proof of “control”?
Notwithstanding Genting’s current shareholding of less than 50% in GenM. Its financial results are consolidated because Genting is the single largest shareholder of the company and has consistently and regularly held the majority of voting rights exercised at GenM’s general meetings. In addition, Genting has control over GenM through its ability to manage the financial and operating policies of GenM’s principal asset — Resorts World Genting (RWG) — under an existing agreement.
However, it is to be noted that GenM has over the years expanded its business and operations overseas, which will continue to contribute significantly to GenM’s revenue and profitability alongside RWG, whereby Genting has no contractual arrangement to exercise any control over the overseas businesses.
Securing a majority stake through the VGO would provide:
- Regulatory and accounting certainty — ensuring Genting’s consolidation of GenM remains beyond question and protecting Genting’s controlling position against future changes in accounting standards for the consolidation of financial results, where there is no statutory control.
- Assurance of control — enabling Genting to exercise clear control and strategic direction.
- Stronger position — strengthening Genting’s position in GenM and better supporting major projects like GenM’s New York bid.
Is the VGO a pre-emptive move to show proof that Genting can provide financial assistance to GenM in the latter’s bid for a casino licence in downtown New York?
The VGO serves the strategic purpose of strengthening Genting’s ownership and control over GenM, thereby demonstrating Genting’s commitment to support GenM’s major investment initiatives, including an expansion into a full-fledged casino resort should GenM’s existing bid be successful.
While GenM is already consolidated within the Genting group’s financials, this step to cross the 50% shareholding threshold effectively removes any residual uncertainty and strengthens governance stability. With a firm controlling position, Genting can better direct strategy, coordinate funding and draw on its financial strength and network to advance GenM’s major investment programme.
The stronger ownership structure is expected to enhance the confidence of investors, financiers and project partners, supporting the timely execution of any significant project should GenM be successful in the New York bid.
The price of RM2.35 is deemed lower than the holding cost of many long-term shareholders of GenM. It also does not take into account the intrinsic value of some of the assets in GenM, such as its land in Miami. What would be a compelling reason for the minority shareholders of GenM to accept the offer?
The offer price of RM2.35 represents a premium of 9.8% to 22.9% to the last traded price of GenM’s shares and the traded price of GenM’s shares over the last 12 months up to now, including the market day before the launch of the VGO. Furthermore, the offer price translates into an implied price-to-book ratio of 1.12 times based on the net asset per share of GenM of RM2.10 as at Dec 31, 2024.
While the premium may appear modest for some shareholders, the VGO provides minority shareholders with an immediate and certain cash exit, removing exposure to market volatility and liquidity risk.
Would the privatisation of GenM address the long-standing issues of related-party transactions (RPTs) that have been a drag on the company?
The primary objective of the VGO is for statutory control for the reasons outlined in our response (to the questions above) and to provide a ready exit for GenM’s shareholders, should they wish to exit.
Will the VGO for GenM affect the proposed disposal of the non-gaming assets of Empire Resorts that was announced several weeks ago?
No. The disposal is part of Empire’s restructuring to strengthen its balance sheet and focus on core gaming operations. The VGO is a separate exercise by Genting to formalise control of GenM and does not impact the execution or rationale of Empire’s asset sale.
Will Genting consider combining all the US-based gaming and casino assets under one roof? Specifically, can GenM’s gaming assets in New York be combined with Resorts World Las Vegas under one vehicle?
The group’s US gaming assets and casinos are currently held by different subsidiaries under Genting and GenM. As Genting has informed our shareholders at previous AGMs [annual general meetings], we would need to examine, understand and address all regulatory issues if we combine these US assets held under different listed companies, which remains under review.
That said, Genting continuously reviews opportunities for strategic alignment and operational synergies across the group’s gaming, leisure and hospitality assets.
Genting executive chairman Lim Kok Thay had in 2021 alluded to a listing of Genting Las Vegas. Is this plan still on the cards?
Genting continues to evaluate strategic options for Resorts World Las Vegas, including a future listing but there are no immediate plans to proceed. Any decision will depend on market conditions, valuation and regulatory considerations. The current focus remains on strengthening operational performance and profitability at the Las Vegas property before pursuing any capital market initiatives.
Does Genting plan to pare down its debts, which will potentially hit RM48 billion if the VGO is successful?
The RM48 billion ($14.7 billion) debt referred to is at the group level and is substantially at various operating subsidiaries, including listed subsidiaries, incurred for their business and operations. It is the Genting group’s intention to pare down the debts incurred to fund the VGO as soon as possible as these debts were assumed for a corporate exercise and not for operations.
The incremental debt can be partly serviced or repaid via the incremental dividends from the GenM shares acquired in connection with the VGO as well as through other corporate/fundraising exercises to be assessed in the future.
Is Genting looking at reducing its stake in Genting Singapore or Resorts World Sentosa to reduce its debts?
There are no current plans to reduce Genting’s stake in Genting Singapore (GenS) or its flagship asset, Resorts World Sentosa. GenS remains a core strategic asset within the group, contributing stable cash flow and having long-term growth potential in one of Asia’s premier integrated resort markets.
While the group continually reviews opportunities to optimise its capital structure and asset portfolio, any divestment or restructuring decision will be carefully evaluated to ensure it enhances shareholder value and preserves control over key strategic assets.
