THE recent drop in Genting Hong Kong Ltd’s share price has raised the question as to whether the plan for Resorts World Ltd — an indirect unit of Genting Malaysia Bhd — to sell its stake in the former is still on the cards.
Like most stocks hit by the negative sentiment surrounding the global micro-environment, Genting Hong Kong’s share price has been on a downward trend, hitting a two-year low of US$0.30 last Wednesday.
Genting Malaysia (fundamental: 2.40; valuation: 0.80) had said regardless of the manner of disposal, the minimum price per share would not be less than US$0.33. The stock dipped to close at US$0.325 on Aug 18.
“Yes, it does not make any sense for a potential buyer of a stake in Genting Hong Kong to acquire it from Genting Malaysia at a minimum price of US$0.33 when he can buy the stock at a lower price on the market. Looking at the global markets today, it could take some time before things recover,” says an analyst with a local bank-backed research house.
Another analyst who covers both the stocks says, “Anybody who is interested in Genting Hong Kong would pick it up directly from the market. It is trading attractively now in the low US$0.30 range. This is at a big discount to its sum-of-parts valuation of US$0.63.”
Genting Malaysia made the investment between 1998 and 2006 at the cost of US$604.1 million, or an average purchase price of US$0.42 per share. As at Dec 31, 2014, the carrying value of its 17.81% Genting Hong Kong stake was US$501.5 million.
Unless the proposed sale is officially called off, the mandate is valid for one year, from July 2, 2015 — the date Genting Malaysia’s shareholders approved the proposal at an extraordinary general meeting (75.84% voted for it while 24.16% voted against it).
“It should be noted that there is no assurance that Resorts World will be able to proceed with the disposal after obtaining the mandate,” Genting Malaysia said in a circular posted on Bursa Malaysia’s website in June.
Genting Malaysia had also informed Bursa that the Genting Hong Kong shares were considered “non-core investments” and treated as “available-for-sale financial assets” in its financial statements.
The independent adviser for the sale, RHB Investment Bank, had noted that except for the net dividends of RM6.2 million and RM47 million received by Genting Malaysia in the 1999 and 2014 financial years respectively, the group has not got any dividend since it invested in Genting Hong Kong in 1998.
It added that the proposed disposal by Resorts World was “fair and reasonable”.
Lost out on a winning card?
The proposed disposal is being keenly observed by not only the shareholders of the companies concerned but also New South Wales’ Independent Liquor and Gaming Authority (ILGA), according to news reports.
Interestingly, in 2012, Genting Group applied to ILGA to increase its stake in Australian gaming group Echo Entertainment to 25% — above the current legislated 10% cap for any one shareholder. It currently has a 6.6% stake in Echo.
The Daily Telegraph reported in May that the authority was delaying its decision to first see who would buy the 17.81% stake in Genting Hong Kong.
Recently, a consortium led by the Echo group — Destination Brisbane Consortium — won a US$2 billion bid to build a casino resort in Queen’s Wharf precinct in Brisbane. Echo’s partners are Hong Kong-based Chow Tai Fook and Far East Consortium.
The massive redevelopment, which will see the construction of an integrated gaming resort in the heart of Brisbane, will include an arc-shaped building with a sky deck as its centrepiece as well as five hotels, three residential towers and 50 restaurants and bars. There will also be ample public space — equivalent to about 12 football fields.
“Yes, Genting Malaysia did lose out on its Echo investment, but that is if you look at it purely from the point of view of the share price. Whether or not it will miss out on getting a piece of the Brisbane pie remains to be seen, as the approval for it to up its stake in Echo is still pending,” says the bank-backed research analyst.
The average share price of Echo in 2012 was A$3.66. It has since risen 35%, closing at A$4.95 last Thursday.
At the Genting Malaysia EGM in July, the board told shareholders that chairman and CEO Tan Sri Lim Kok Thay, whose family controls Genting Group, had expressed interest in buying the Genting Hong Kong stake.
As at June 15, the Lim family owned 58.44% of Genting Hong Kong. Genting Bhd, in which the Lim family holds a 39.75% stake, owns 49.31% of Genting Malaysia.
Lim and Genting Bhd — the single largest shareholder of Genting Malaysia — had refrained from voting at the EGM.
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This article first appeared in digitaledge Weekly, on August 31 - September 6, 2015.