PETALING JAYA: Genting Bhd
’s offer to privatise Genting Malaysia Bhd at RM2.35 per share is deemed “unfair but reasonable”, according to an analyst.
Tradeview Capital Sdn Bhd portfolio manager Ng Tzyy Loon said the RM2.35 offer price – representing a 9.8% premium over Genting Malaysia’s last traded price of RM2.14 – may be deemed unfair for investors who have held the stock for years at higher prices of RM3 to RM5.
“However, investors may still take the offer because they have no choice. If they do not accept it, they probably would not be able to recover their money,” he told StarBiz.
In a filing with the local bourse yesterday, Genting Bhd announced its plans to buy out and delist Genting Malaysia in a deal worth RM6.7bil. The offer to minority shareholders is equivalent to RM2.35 per share.
Trading in shares of Genting Malaysia and Genting Bhd was suspended on Monday.
Ng said he was “surprised” by Genting Bhd’s decision to proceed with the takeover deal, noting that the move came even though Genting Malaysia’s share price was already trading above its net tangible asset (NTA) value of RM2.10 per share.
“Looking at the company’s book value, it did not seem worthwhile to privatise unless it was cheaply discounted. However, if you look at the company as a whole, its intrinsic value has been declining day by day – so whether they do it now or later, there is not much difference,” he said.
Ng said it remains to be seen how many shareholders will accept the offer in the first round and how quickly they do so, looking at the current premium.
“Shareholders can wait until the last minute before deciding whether to accept, as things may still develop,” he said.
“If acceptances are low, Genting Bhd may sweeten the offer by raising the offer price by about 5% to around RM2.50. Hence, those hoping for a better deal may choose to delay in accepting the deal,” he added.
Ng said the downside of the takeover deal for Genting Bhd is quite limited and mainly lies in the cash outlay. Instead, operationally, the group may benefit from reduced investor scrutiny as a result of the exercise.
Genting Bhd said the privatisation deal will mostly be satisfied through debt financing of up to RM6.3bil, while the rest will be covered by internally generated funds.
Following the exercise, the gearing level of the company is expected to reach 0.50 times from 0.43 times, while the total debt will increase to RM46.7bil from RM40.4bil.
Currently, Genting Bhd holds RM20.9bil of cash.
Genting Bhd currently holds 49.36% of Genting Malaysia and the takeover offer is expected to allow Genting Bhd to gain statutory control of Genting Malaysia, to cement Genting Bhd’s position as the holding company of Genting Malaysia and to become its majority shareholder.
Moreover, Genting Bhd also rationalises the exercise as a move that would strengthen its financial position and flexibility, allowing it to support Genting Malaysia’s expansion plans, including its US$5.5bil bid to develop a new integrated resort in New York through its subsidiary, Genting New York LLC.
Ng said Genting Bhd likely had little choice but to finance the deal through borrowings, as it may not have sufficient internal funds or may prefer not to commit too much of its own capital.
“The whole privatisation is largely financed by debt, which means they can raise funds through debt issuance or bank borrowings. This shows that Genting Bhd is relying more on the debt market rather than the equity market, and it probably indicates that the group is not in urgent need of equity funding compared to other listed companies,” he said.
Meanwhile, Rakuten Trade head of equity sales Vincent Lau said the privatisation exercise is a good move for Genting Bhd as it allows the group to streamline its operations and regain tighter control of its core assets.
Lau said the deal also enables Genting Bhd to take advantage of Genting Malaysia’s depressed share price, which is near its 52-week low, and consolidate control of the business at a reasonable premium.
“The 9.8% premium is decent. Some may think that the offer price is too low, but it is around the group’s NTA per share,” he said, adding that one potential downside of the deal is the higher related party transaction threshold within the group.
On the deal being largely financed via debt, Lau said it is “not a point of concern” and that the group “can afford it”, as it continues to generate “pretty decent cash flows” from its operations.
“Financing is plentiful and interest rates have come down. This is something within their control,” he said.
