Genting Malaysia upgraded to ‘hold’

“The stake acquisition of Empire from ultimate holding company Kien Huat has moved on to the next phase of privatising the US listco without needing minority shareholders’ approval. Further cash injection is likely. Target price: RM3.01. Entry price: RM2.80, ” it said.

KUALA LUMPUR: UOB Kay Hian Malaysia Research has upgraded Genting Malaysia to “hold” as its share price has fallen close to its target price.

It said yesterday that the unpopular related party transaction of acquiring loss-making US-listed Empire Resorts is likely to perpetuate a long-term ESG valuation discount on the stock.

“The stake acquisition of Empire from ultimate holding company Kien Huat has moved on to the next phase of privatising the US listco without needing minority shareholders’ approval. Further cash injection is likely. Target price: RM3.01. Entry price: RM2.80, ” it said.

Genting Malaysia via Genting USA recently entered into a binding agreement to buy 46% of Kien Huat’s stake in Empire which owns Catskills Casino in Upstate New York from its holding company Kien Huat Realty for US$128.6mil or RM537.8mil.

Subsequently, both entities formed a JV called Hercules Topco LLC (Hercules) with Genting Malaysia (via GenUSA) holding a 49% stake (before potential dilution should Kien Huat exercise its preferred shares of Empire into ordinary shares).

The JV is formed to resolve Empire’s current liquidity issue via privatisation and restructuring efforts. Empire’s earlier filing with the US Securities and Exchange Commission said that if it cannot secure financing to bail it out, it may have to go the bankruptcy route.

Genting USA will need to inject its 46% stake in Empire and pay Kien Huat an additional US$9.4m to be entitled to have a 49% stake in Hercules.

Subsequently, GenUSA and KH will inject a further US$28.5mil (or RM119mil) and US$29.7mil (or RM124.1mil) respectively into Hercules, with most of the proceeds used to fund the privatisation of Empire.

Genting Malaysia will fork out a huge US$167mil cash to complete this JV proposal, including an initial stake acquisition of US$128.6mil (38% stake in Empire), US$9.4mil paid to Kien Huat and US$28.5mil (its 49% share of cash infusion to mostly fund Hercules to buy out minorities of Empire).

“We do not rule out the possibility of further cash infusion arising from Kien Huat converting its preferred shares in Empire to ordinary shares. That which would require Genting Malaysia to spend an additional US$36mil (assuming it pays the same price per share under the privatisation exercise), or/and a booster cash injection for Empire, which featured a huge negative EBITDA in 2018 and higher indebtedness (more than RM2.6bil), ” it said.