Genting Hong Kong is majority-controlled by Kok Thay who holds 61.68% in the company
Genting Malaysia Bhd
’s recent proposal to sell its entire 17.81% stake in Genting Hong Kong Ltd does not signify the start of any further restructuring of the company as the latter is among the last of its remaining non-core assets.
A senior analyst who tracks the hospitality and leisure group closely says apart from this stake and some preference shares in Pan Malaysian Pools Sdn Bhd, Genting Malaysia does not have any more non-core assets.
“We are however neutral on this recent development as it has already been anticipated by the market for some time,” he says.
Genting Malaysia owns and operates major properties including Resorts World Genting, Resorts World Casino New York City in the US, more than 40 casinos in Britain and Resorts World Bimini in the Bahamas.
Genting Malaysia is also the owner and operator of two seaside resorts locally, namely Resorts World Kijal in Terengganu and Resorts World Langkawi.
On Monday, Genting Malaysia announced that its indirect subsidiary Resorts World Ltd was proposing to sell its entire 17.81% stake or some 1.43 billion shares in Genting Hong Kong for at least US$469.74mil (RM1.7bil) cash or US$0.33 per share.
Genting Malaysia said the manner in which the shares could be disposed of included but was not limited to transactions done in the open market, off-market transactions or a combination of both.
In response to this, Maybank IB Research which covers Genting Malaysia notes that the average daily trading volume of Genting Hong Kong shares over the last six months was only 2.4 million shares.
“Based on this run rate, it will take approximately two years for Genting Malaysia to completely dispose of its 17.8% shareholding.
“Therefore, it is likely that it will go off-market in order to dispose its shares in Genting Hong Kong.”
No purchaser has so far been identified for the block of shares.
Genting Hong Kong is majority-controlled by Tan Sri Lim Kok Thay (pic) – Genting founder Tan Sri Lim Goh Tong’s son – who holds a 61.68% stake in the company.
Both Genting Hong Kong and Genting Malaysia shares last traded at US$0.36 and RM4.30 respectively.
In its Monday announcement, Genting Malaysia said it intends to use proceeds raised from the proposed stake sale to partially fund its Genting Integrated Tourism Plan (GITP) as well as any future investments and/or working capital of the Genting Malaysia group.
Under its GITP, which is a 10-year master plan announced in 2013, Genting Malaysia has plans to develop, expand, enhance and refurbish the hotels, theme park and infrastructure at Resorts World Genting, its integrated family, leisure and entertainment resort.
Everything has changed
Meanwhile, the company also revealed on Monday that the original cost of investment in Genting Hong Kong was US$604.1mil, representing an average purchase price per Genting Hong Kong share of US$0.42.
The investment was made between 1998 and 2006.
As of Dec 31, 2014, the carrying value, which takes into account depreciation, amortisation, impairment costs or debt attached to the shares was US$501.5mil, which is 17% lower that what had been initially invested by the company.
“I wouldn’t say that Genting Malaysia made a wrong choice at that time going into Hong Kong’s leisure, entertainment and hospitality industry, it was probably a good investment at that time, then Macau opened up and everything changed,” says the senior analyst.
“Following that, Singapore opened up its entertainment scene and everything changed again,” he adds, referring to both Macau’s and Singapore’s entrance into the industry.
Macau first got its foot into the leisure, specifically, casino scene in 2004 when the world’s largest casino operator Las Vegas Sands Corp opened Sands Macao, the first foreign-owned casino there.
In 2007, it took it up one notch with its Venetian Macao, a luxury hotel and casino resort located on the Cotai strip.
In Singapore, both Las Vegas Sands and Genting Singapore were granted exclusive rights from 2007 to 2017 to operate integrated resorts Marina Bay Sands and Resorts World Sentosa, respectively in the city-state.
Notably, both Macau and Singapore casinos have since seen a slowdown in growth over the years amid a softer economic environment and increased competition from other Asian counterparts like Cambodia.
On Thursday, Genting Singapore reported a 73% fall in first quarter net profit on higher write-offs and decreased number of high-roller visitors at its casino.
Genting Hong Kong operates primarily Star Cruises in Asia Pacific, Norwegian Cruise Line (NCL) and Resorts World Manila.
The company which is dual-listed on Hong Kong and Singapore bourses recently announced earnings of US$370.9mil in the year ended Dec 31, 2014 on revenue of US$570.8mil in 2014, attributing a 31% drop in earnings to higher gains from disposals in 2013.
Notably, the world’s largest travel and leisure company, British-American firm Carnival Corp. made some US$1.2bil in profits on revenue of US$15.9bil for its financial year ended Nov. 30, 2014.
Genting Hong Kong in its latest financial announcement noted that gaming revenue increased 10.5% to US$348.9mil despite a reduction in gaming volume.
However, passenger ticket sales dipped 15.6% to US$134.8mil, mainly due to the drydocking of vessel SuperStar Virgo and changes in deployment and itineraries of SuperStar Gemini and Virgo.
In 2014, Genting Hong Kong registered net gains of US$301mil, including gains of US$276.6mil, by selling shares in associate firm NCL in March.
It, however, registered even higher net gains in 2013, totalling US$576.3mil.
Genting Hong Kong was in a net cash position of US$260.1mil as at Dec 31, 2014, against US$189mil for the same period, a year earlier.
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