Short position - LBS Bina, Genting, ESG

Is a sale finally happening?

LBS Bina Group Bhd has a long history with a development project in Zhuhai, China going back to 2002.

It’s development in Zhuhai spanning over 250 acres was at one time touted as the uncut diamond of the property developer that specialises in affordable homes. The large tract of land has an award-winning 36-hole golf course and is part of a bigger development of almost 900 acres.

LBS inherited 60% of the Zhuhai development after it took over the listing status of Instantgreen Corp Bhd, a company that went into financial distress during the 1997/98 financial crisis. Instantgreen specialises in developing golf courses and had spent some US$45mil in the development then.

Even some 15 years ago, the project was touted as the cornerstone of LBS’ entry into China and could fetch a gross development value of about RM5bil stretching over six years. However, the development in China did not play a big part in LBS’ growth story.

Previously there have been several reports of LBS wanting to dispose of its 60% interest in the Zhuhai development. It was a development that was viewed positively by funds and research houses as a sale could fetch LBS a hefty amount.

But there has been little progress on the matter and the latest research reports did not indicate a value to LBS’ stake in the Zhuhai development.

In the latest development, LBS announced that it had signed a memorandum of understanding with a company from China to dispose of its 60% stake in Zhuhai International Circuit Ltd (ZIC). ZIC owns and operates a racing circuit, which was the venue for several races in the past 14 years.

The announcement did not come with details, suggesting that the deal is very much at preliminary stages. However, it did state that both LBS and the counter-party, which is Zhuhai Jiuzhou Holdings Group Co Ltd (JZ), would work to expedite a formal agreement with definitive terms.

JZ is the company authorised by the regional government to undertake tourism and convention activities. Considering JZ’s clout, perhaps this time around a deal will happen.

Genting’s assurance

THE Genting group of companies continues to grab headlines. The latest news is good news to shareholders of the Malaysia-listed Genting companies. It is now said that the beleaguered Genting Hong Kong Ltd is confident of securing sufficient capital to fulfil its mounting debt obligations. This should come as a relief to shareholders in the other listed entities in the group. In the past, Genting Malaysia has been used as a vehicle to lend support to Star Cruises which is the bedrock of Genting Hong Kong.

For example, Genting Malaysia was once invested in Genting Hong Kong although it had disposed of that 17% block for US$415mil in 2016. From 1998 until that period, the Malaysian company had invested more than US$750mil and impaired more than RM2bil of its investment in the Hong Kong entity.

There are not that many players in the cruise ship business which has seen stable growth in good times. The cruise business is a growing aspect of tourism and quite popular in China and other countries. The growing affluence of the population of China also helped Genting Hong Kong grow in the past.

However, this was all before the Covid-19 pandemic. The sector most affected within the tourism industry is the cruise industry with on-board outbreaks, refusal of port access and now no clear idea of when ships can sail once again. It will take a while to recover.

Meanwhile, Genting Hong Kong has high capital expenditure plans to build more state of the art cruise ships. Combining the issues of the outstanding debt, the high capex and the long period in which the sector may take to recover, it is a wonder if the assurance that other companies in the group would not be called to help out, will hold.

Time to shut it down

IN these times, the environment is front and centre among concerns raised by the industry and its lenders.

Principles of ESG (environment, social and governance) are increasingly proliferating lending and operational covenants. Even in investing, large funds like the Employees Provident Fund are embracing those covenants when deciding where and what to invest in.

This has led to certain types of industries being shunned by investors as the principles of ESG embraced by companies are said to generate better returns for investors.

For the oil and gas industry, amid declining demand, the industry has to find ways to reduce the emissions of greenhouse gases and eventually become carbon neutral. Investors and increasingly lenders are demanding for those commitments.

Petroliam Nasional Bhd understands that and is striving to reach those targets in time despite the difficulties it is facing.

Juxtaposing that against what the largest and most valuable company in Malaysia is trying to achieve, we have a pollution case that has brought misery to a large part of the population of the Klang Valley.

It is because of the effluent, hundreds of thousands of people will have to go without water for days. Having no water at the taps makes it cumbersome and costlier to wash hands when combating the Covid-19 pandemic as people will need to buy bottled water or hand sanitisers to keep their hands clean.

Then we have businesses that are struggling to survive during these tough times and now find they cannot operate because of the water cut caused by a polluter.

Going by reports and if true that effluent was from a repeat offender, then the local authorities, state and federal governments will need to throw the book at the culprit.

By disregarding the environment, the offender has caused great economic loss brought about by a forced water cut. The economic loss will likely be way larger than what the offender could ever hope to make operating for years, if not for decades, let alone in the taxes it pays to local and the federal government.

And with the patience of the public and business having evaporated on such offences, it is time to teach a lesson to people who disregard the environment and cause great hardship. It is time to shut down such practices and fine them heavily. The misery and cost far outweighs their benefit.

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Short position , LBS Bina , Genting , ESG ,


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