Frankly Speaking: Deal not great for GENM’s empire

This article first appeared in The Edge Malaysia Weekly, on May 25, 2020 - May 31, 2020.
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It has not even been a year since Genting Malaysia Bhd (GENM) bought a 34% equity stake in Empire Resorts Inc, but the group has already booked a RM100 million loss related to the investment in the first financial quarter ended March 31, 2020 (1QFY2020).

That dragged GENM into a deeper loss of RM417.9 million in 1QFY2020, even as the pandemic is taking a heavy toll on the group.

GENM explained that the RM100 million is related to its share of loss of Empire Resorts, which operates a casino resort in Sullivan County, New York.

The loss was mainly due to the refinancing of Empire’s loans as well as depreciation and amortisation. Its share of Empire’s operating loss was RM13.5 million, according to the quarterly result release. In the preceding quarter ended Dec 31, 2019, GENM booked a loss of RM31.6 million related to Empire Resorts. The group has so far incurred a total loss of RM131.6 million related to the company.

GENM’s share price plummeted when it bought the stake in Empire Resorts from its controlling shareholder, Tan Sri Lim Kok Thay, in August last year, amid scepticism over the prospects of the deal. It cost GENM RM714 million, including RM174.8 million for a recapitalisation exercise. Shareholder approval was not required as the RM538.8 million price tag was less than 5% of its total asset value.

Judging by the loss, the sceptics might be proven right about the investment. In its heyday, a RM100 million loss might not have been that significant to GENM. However, the timing of the purchase appears to be bad for GENM, whose investments abroad have not yielded handsome returns. But it is a different story for the stake vendor.

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