PETALING JAYA: Genting Bhd
shares plunged to a near two-decade low as investors balked at its proposed RM1.25bil rights issue, with concerns mounting over potential earnings dilution and whether the fundraising would do enough to ease the group’s hefty debt burden.
The sell-off prompted Bursa Malaysia to suspend intraday short selling (IDSS) in the stock for the rest of the day after its price fell beyond the prescribed threshold of 15% or 15 sen from its reference price.
IDSS is scheduled to resume today, the stock exchange operator said in a filing.
At market close, Genting shares fell 43 sen, or 22.87%, to RM1.45, wiping more than RM1.6bil off its market capitalisation.
At yesterday close, the stock’s market cap stood at RM5.58bil.
The selling pressure also spread to 73.8%-owned subsidiary, Genting Malaysia Bhd, whose shares fell 17.45%, or 26 sen, to RM1.23. IDSS in the counter was also suspended for the day.
A fund manager told StarBiz that Genting Bhd’s sharp share price decline was “largely expected” although the scale of the sell-off suggested growing investor concerns over the group’s balance sheet, potential earnings dilution and future funding needs amid significant capital commitments in Singapore and the United States.
He expects the near-term outlook to remain challenging over the next six to 12 months, with the rights issue coming at an uncomfortable time for shareholders.
“While the exercise may be financially prudent, the market is demanding greater discipline in capital management and clearer earnings visibility,” the fund manager said.
Last Friday, the gaming group announced a proposed renounceable rights issue to raise gross proceeds of RM1.25bil, with the issue price expected to be set at a 25% to 30% discount to the theoretical ex-rights price, based on the five-day volume-weighted average price before the price-fixing date.
The issue price, entitlement basis and final amount to be raised will be determined after shareholders’ approval is obtained at an EGM.
The proceeds will be used to repay RM800mil in borrowings maturing over the next 12 months, allocate RM429.5mil for general working capital and the balance to cover expenses related to the rights issue.
The group estimated that the reduced debt could save RM41.3mil of interest expenses annually (RM31.4mil post-tax), based on its weighted average interest rate of 5.16%.
The proposed exercise marks Genting’s first rights issue, coming as it reported a loss in the second quarter ended June 30 and carried borrowings of RM45.3bil as at end-June.
A head of research with a brokerage said the market is pricing in concerns of dilution, high leverage and future funding risks. He added that Genting’s challenge was not a lack of growth opportunities, but the funding required to realise them.
Improved cash flow could help ease the current pressure on its valuation, the research head said.
In a report, Maybank Investment Bank Research (Maybank IB) downgraded Genting to a “sell” from “buy” and cut its target price to RM1.49 from RM2.88, cautioning the rights issue could signal further equity fundraising or lower dividends.
“We note that Genting has been trying to refinance its borrowings to longer dated ones. This exercise concerns us because it signals to us that Genting probably has limited success in doing so,” the research firm said in an Oct 11 report.
Maybank IB said it does not rule out more equity fundraising efforts or fewer dividends as Genting rebuilds its cash balance.
Meanwhile, CIMB Research estimated that the exercise could dilute core earnings per share by 17% to 18% in the financial year 2027 (FY27) and FY28, based on an illustrative one-for-four entitlement priced at RM1.30 per share.
It said while the RM800mil debt repayment is expected to generate annual interest savings of RM41.3mil, net gearing would improve only modestly, from 102% to 94%, based on pro forma second-quarter FY26 figures.
Under this scenario, CIMB Research said it lowered its sum-of-parts target price to RM2.10 from RM2.30 previously.
It said investors generally view rights issues negatively because they replace debt with equity, which is a more expensive form of financing. However, it said the renounceable nature of the issue could help cushion some of the selling pressure.
PublicInvest Research viewed the rights issue as a more sensible funding avenue amid the group’s diminishing debt headroom and substantial capital commitments, particularly for Resorts World New York City in the United States and Resorts World Sentosa in Singapore.
The research house added that the recent rating downgrade by Fitch Ratings, and earlier cuts by Moody’s and S&P had increased its funding costs, thus making the cash call a more sensible way to raise funds amid potentially higher US dollar borrowing costs.
“The exercise allows Genting to raise utilisation of the proceeds up to 25% for the purposes it listed, which means that it could utilise up to RM1.1bil to repay debt without requiring additional shareholders’ approval by reducing the allocation for working capital or vice versa,” it added.
But given the uncertain earnings outlook, PublicInvest Research has maintained its “neutral” rating on the stock.
Last month, Fitch Ratings downgraded Genting and its subsidiary, Genting Malaysia, to BBB- from BBB, while maintaining a “stable” outlook for both.
The rating agency noted that Genting Malaysia’s New York casino expansion remained on track, although the substantial capital expenditure required would continue to put pressure on its credit metrics during the construction period.
Genting’s major shareholders, including Kien Huat Realty, Kien Huat International and Datuk Indera Lim Keong Hui, have irrevocably undertaken to subscribe for their full entitlements, collectively representing 45.1% of the proposed rights issue.
The remaining portion will be underwritten to ensure the issue is fully subscribed, the group had stated.
Genting is targeting completion of the rights issue in the first quarter of 2027.
