This article first appeared in digitaledge Weekly, on September 14 - 20, 2015.

THE Lim family is keen to acquire Genting Malaysia Bhd’s 17.81% stake in Genting Hong Kong Ltd and is willing to pay a premium for it, sources say.

“They are considering buying the stake for at least US$0.33 per share — 10% more than the current trading price of the listed cruise-ship operator of US$0.30 per share,” says a source.

At US$0.33 per share, the stake would cost US$499.57 million or US$45.4 million more than getting it for US$0.30.

So, why is the Lim family intent on buying the stake?

The reasons remain unclear but one thing is for sure — Genting Hong Kong is sitting on a nice cash pile, which some industry observers say is probably one of its highest ever.

As at June 30, Genting Hong Kong’s net cash position had strengthened to US$786.1 million from US$260.1 million as at Dec 31, 2014. It gained US$212.5 million and US$387.1 million from the disposal of certain Norwegian Cruise Line Holdings Ltd shares in March and May respectively, which generated total net sale proceeds of US$863.9 million for the company.

A growing cash pile aside, the listed cruise-ship operator is one step closer to upping its stake in Australian gaming group Echo Entertainment.

After over a three-year wait, it recently received the green light from the New South Wales Independent Liquor and Gaming Authority to increase its potential maximum voting power in Echo to 23% from 10%. Following that, it now has to wait for approvals from the Queensland attorney general and minister for justice.

Genting Hong Kong had first sought to raise its stake in Echo to above the legislated 10% cap for shareholders in 2012. The local gaming group currently has 6.6% equity interest in the Australian company.

Echo will be involved in a massive redevelopment project that will create an integrated gaming resort in the heart of Brisbane. The project includes an arc-shaped building with a sky deck as its centrepiece as well as five new hotels, three residential towers, 50 restaurants and bars. It will also have ample public space that is equivalent to about 12 football fields.

Recently, a consortium led by the Echo group — Destination Brisbane — won a bid worth A$2 billion to build a casino resort in the city’s Queen’s Wharf precinct. The other partners are Hong Kong-based Chow Tai Fook and Far East Consortium.

Apart from Australia, Genting Hong Kong also has direct exposure to the Philippine gaming market. It owns 50% of Resorts World Manila through its stake in Travellers International Hotel Group Inc, a joint venture with Alliance Global Inc.

Although its earnings from the Philippines fell recently, gaming analysts say that market has potential and has become a rising star with the clampdown on gaming in other popular markets like Macau.

Genting Hong Kong’s share of profit from Travellers totalled US$22.6 million in 1H2015 compared with US$27.8 million in 1H2014. This was primarily due to a drop in gaming volume at Travellers during the period.

“The Philippines is also a draw for the Chinese gaming market,” says an industry observer.

Apart from gaming, Genting Hong Kong also has a finger in the massive Chinese pie through its Genting Secret Garden project. It has been reported that the Genting Secret Garden Ski Resort will be hosting the freestyle skiing and snowboarding events in the 2022 Winter Olympics.

It is worth noting, too, that Genting Hong Kong acquired Crystal Cruises LLC, a global luxury cruise line operator, this year. The US$550 million purchase expanded its presence in the luxury segment of the cruise industry, giving it acc ess to 480 ports in North America, Europe, Asia, South America, Africa and Australia.

Coming back to Genting Malaysia’s proposed sale of its Genting Hong Kong stake, the local listed group has said that regardless of the manner of disposal, the minimum selling price per share will not be less than US$0.33. It expects to pocket a minimum gain of RM1.25 billion from the deal. This was prior to the ringgit free-falling to its current rate of around 4.30 to US$1.

The minority shareholders of Genting Malaysia (fundamental: 2.40; valuation: 0.80) approved the proposed sale — 75.84% voted for it and 24.16% against it — at an EGM on July 2. The mandate for the 17.81% stake sale is valid for one year from July 2.

Genting Malaysia’s board also told the shareholders at the EGM that Tan Sri Lim Kok Thay, whose family controls the Genting group, had expressed interest in buying the Genting Hong Kong shares.

As at June 15, the Lim family owned a 58.44% stake in Genting Hong Kong. Genting Bhd, in which the Lim family has 39.75% equity interest, controls 49.31% of Genting Malaysia.

Lim and Genting Bhd — the single largest shareholder of Genting Malaysia — refrained from voting at the EGM.

The drop in Genting Hong Kong’s share price since August has raised questions as to whether a plan for Genting Malaysia’s indirect unit Resorts World Ltd to sell its stake in the former was still on the cards.

Like most stocks hit by the recent negative sentiment in the global financial markets, Genting Hong Kong’s shares have been on a downward trend and hit a three-year low of US$0.29 last Wednesday. It is worth noting here that Genting Malaysia’s minimum disposal price for its Genting Hong Kong stake will not be less than US$0.33.

At its current trading price, gaming analysts say Genting Hong Kong is trading at a discount to its sum-of-parts valuation of US$0.63 a share.

Genting Malaysia had invested in Genting Hong Kong between 1998 and 2006 at a cost of US$604.1 million. This translates into an average purchase price per Genting Hong Kong share of US$0.42. As at Dec 31, 2014, the carrying value of the shares being disposed of was US$501.5 million.

The independent adviser for the sale — RHB Investment Bank — had noted that since Genting Malaysia invested in Genting Hong Kong in 1998, the group had received net dividends only in 1999 and 2014 of RM6.2 million and RM47 million respectively. It added that the proposed disposal by Resorts World was “fair and reasonable”.