GENTING Group executive chairman Tan Sri Lim Kok Thay is eyeing a bigger slice of South Korea’s burgeoning casino and gaming cruise market, even as Genting Hong Kong Ltd said it was selling back its 50% stake in a South Korean casino unit to its partner, industry observers say.
In a statement last Wednesday, Lim, who is Genting Hong Kong chairman and CEO, said the disposal of its 50% equity in Magical Gains Holdings Ltd, together with loans granted to the latter — to Chinese property developer Landing International Development Ltd for KRW130 billion (HK$864.07 million) — “would enable the company to focus on and put more resources to expand its cruise and cruise-related businesses [as well as allow] the company to redeploy the cash proceeds flexibly to further explore and fund other investments and business opportunities as they may arise”.
While the disposal price of KRW130 billion is the same as the total equity and loans Genting Hong Kong pumped into Magical Gains in Korean won in November 2014, the amount it is getting in Hong Kong dollar equivalent barely eight months later is some HK$53.3 million less than the HK$917.4 million initially invested. In short, unless the money is to be redeployed in South Korean won terms, Genting Hong Kong is selling its investment at a loss.
Why would Genting Hong Kong (formerly known as Star Cruises Ltd) want to exit Magical Gains, whose wholly owned unit Grand Korea operates a casino in South Korea’s Jeju province, which Genting Hong Kong itself described as “an increasingly important and regulated Asian gaming and leisure destination”?
Tourism statistics support this view. Jeju Island reportedly attracted 2.3 million foreign tourists last year, of which 1.8 million were from China. They do not need a visa to visit Jeju, which is only an hour’s flight from Shanghai and a 2 1/2 hour flight from Beijing, and also offers permanent resident status for large foreign investors. Chinese tourists need a visa to visit other parts of South Korea.
“South Korea has just legalised the operation of casinos on cruise ships and my guess is Genting Hong Kong is vying for a slice of that market,” an observer says.
As it is, only foreigners are allowed to patronise casinos in South Korea and casino cruise ships are not allowed to operate in the country’s waters.
“The [South Korean] government has no plans to allow locals to patronise casinos or casino cruise ships but South Koreans can patronise casinos outside the country, correct?” the observer adds, implying there could be legitimate ways to cater to South Koreans without giving specific details.
It cannot be immediately confirmed whether the South Korean government is disallowing casino operators from also owning casino cruise ships in the country. If this is true, Genting Singapore PLC, which in February this year held a ground-breaking ceremony for Resorts World Jeju, would be excluded from any casino cruise-related fray in South Korea. That would, in turn, mean that another unit in the Genting group would make the necessary investment in South Korea, which is geographically deemed to be under the purview of Genting Singapore.
The Lim family’s Kien Huat Realty Sdn Bhd owns 40% of Genting Bhd, which holds 52.6% of Genting Singapore and 49.3% of Genting Malaysia Bhd.
The family’s exposure in Genting Hong Kong is larger — controlling about 61.9% of Genting Hong Kong through private vehicles, excluding the deemed interest in Genting Malaysia’s 17.81% stake in Genting Hong Kong that would potentially lift its holdings to some 79.74%.
But the Lims’ direct holdings in Genting Hong Kong could rise given that Genting Malaysia — which also owns casinos in the UK and the US — recently received shareholders’ approval to sell its entire 17.81% stake in Genting Hong Kong, including to related parties such as the Lim family, for at least US$472.25 million or RM1.76 billion. The number is based on the minimum sale price of 33 US cents or RM1.23 for each of the 1.43 billion Genting Hong Kong shares owned by Genting Malaysia.
If the 17.81% stake is sold at its carrying value of 35 US cents (RM1.30) apiece, the gross proceeds would rise to US$501.5 million (RM1.87 billion), Genting Malaysia’s circular to shareholders show.
The sale, if and when it happens, would further boost Genting Malaysia’s cash pile, which stood at RM2.78 billion compared with only RM221.7 million short-term borrowings and RM1.43 billion long-term borrowings as at end-March 2015.
While Genting Malaysia said it intends to use proceeds from the Genting Hong Kong shares disposal to fund its RM5 billion Genting Integrated Tourism Plan, the money can also go towards working capital and other investments, analysts say. Genting Malaysia’s hilltop 20th Century Fox theme park is expected to open in the second half of 2016.
It is worth noting that Genting Hong Kong — which just spent US$550 million to acquire Crystal Cruises LLC, a global luxury cruise line operator — is the entity with direct exposure to its casino in the Philippines, which also targets mass Chinese patrons.
Genting Hong Kong owns 50% of Resorts World Manila (RWM) in the Philippines, through its stake in Travellers International Hotel Group Inc, a joint-venture with Alliance Global Inc.
Interestingly, an observer questions whether Genting Hong Kong will be allowed to keep its direct holdings in the Philippines — drawing parallels with how Genting Singapore had to ensure it did not have direct exposure to Genting group’s investment in Macau when it was granted one of the city state’s two integrated casino resort licenses in December 2006.
“You might think this is just left pocket to right pocket, but to some people it makes a real difference,” the observer says.
On geographical segmentation among the various Genting units, the observer says people tracking the group were surprised when Genting Bhd was tapped as the unit to invest in the Las Vegas casino when Genting Malaysia was then deemed the designated entity for investments in the US due to the New York, Miami and the Bahamas investments.
What’s certain for now is that Lim is directing more resources towards tapping the Chinese market.
On July 18 this year, Star Cruises redeployed SuperStar Libra to Xiamen, China, from Penang. The move sparked a storm in a teacup as Penang Chief Minister Lim Guan Eng reportedly blamed the transport minister for “sabotaging” the island’s tourism industry and demanded that the latter act fast to retain the cruise providers.
When contacted, a Star Cruises spokesman says Malaysia “remains an important market for Star Cruises” and the company would retain her regional office in Penang and continue to call on Malaysian ports”. Star Cruises will continue to operate what it calls its “expedition cruise ship, the Taipan” from Penang “to cater to the high-end and MICE markets”.
“With the new addition of a submarine on board the Taipan, Star Cruises is currently reviewing the ship’s operational schedule to best take advantage of Malaysia’s scenic marine attractions,” the spokesman says in an email reply.
Back at Genting Malaysia, those tracking developments at the company would know 24.16% of minority shareholders present at the July 2 meeting voted against the proposed disposal of its stake in Genting Hong Kong. The 493.04 million shares belonging to those minorities represent about 8.7% of Genting Malaysia’s share base while those who voted for the disposal held 27.3% of Genting Malaysia.
With the Genting group celebrating its 50th anniversary this year, some investors are hopeful of the potential of a special dividend from Genting Malaysia or Genting Bhd.
“We believe the sale process will be transparent and will appropriately address issues, such as the deal being a potentially related-party transaction,” UOB KayHian Research’s Vincent Khoo told clients in a May 12 note.
“We hope cash-rich Genting Malaysia will be able to partially utilise the sales proceeds to modestly boost its capital management efforts, particularly this year when Genting Malaysia celebrates the Genting Group’s 50th anniversary,” he says, retaining his “buy” call on Genting Malaysia with a higher target price of RM4.76 — implying a 11.5% upside potential from its RM4.27-close on July 31.
Incidentally, Genting Malaysia has about one year to utilise the mandate to sell its Genting Hong Kong stake — by which time it is also slated to reopen its hilltop outdoor theme park.
This article first appeared in digitaledge Weekly, on August 3 - 9, 2015.