The conditional takeover offer from Genting Bhd for its unit Genting Malaysia Bhd, a global operator of casino resorts, is “credit negative” for the parent, said credit and market research provider CreditSights Inc.
That is because it “could worsen” Genting Bhd’s pro-forma net leverage “by nearly a turn to 3.8 times to 3.9 times, and add to refinancing concerns for its US$1.5 billion January 2027 bond,” stated the institution.
“While Genting Bhd affirmed to pare down the new debt incurred for the deal via incremental dividends from Genting Malaysia and other fundraising exercises, we think it may take longer to realise this considering Genting Malaysia’s heavy expansion plans in New York once it wins the new casino bid” there, wrote Creditsights analysts Lakshmanan R and Jonathan Tan Jun Jie.
They added: “We also see the possibility of Genting Bhd extracting more dividends from its cash-rich Genting Singapore entity … to mitigate the impact.”
On Monday, Genting Bhd said it was seeking to acquire 2.87 billion shares – or just under 51 percent of the total – for MYR2.35 (US$0.56) per share, equal to about US$1.59 billion.
The offer price represents a premium of 9.8 percent over the last traded price of MYR2.14 on Friday, before trading in the stock was suspended pending the announcement.
“We view the deal as a modest credit positive for Genting Malaysia as Genting Malaysia’s ties with Genting Bhd will strengthen, allowing Genting Bhd to be more forthcoming in rendering financial support to Genting Malaysia for its New York expansion,” stated CreditSights, a unit of Fitch Group.
According to the institution, a potential delisting of Genting Malaysia “will result in less-timely, poorer-quality financial disclosures, lowered regulatory scrutiny, and shuttered access to public equity fundraising”.
“This could in turn stoke governance concerns, considering Genting Malaysia’s history of extensive related party transactions, as evidenced by the takeover of weak entity Empire Resorts,” added the analysts.
They said however that “it is unlikely that Genting Bhd can garner the minimum shares needed to delist Genting Malaysia,” i.e., above a 75 percent threshold.
“The current takeover price of MYR 2.35 per share may be insufficient to entice many shareholders that are already sitting on paper losses,” observed the analysts.
They added: “The takeover offer does not provide an appealing premium over last traded or recent historical prices. In turn, Genting Bhd may have to contend with having just circa 50 percent to 65 percent stake in Genting Malaysia … or sweeten its takeover offer before the stipulated 28 November date.”
Earlier this month, Genting Bhd increased its stake in Genting Malaysia to 49.38 percent by acquiring an aggregate of 1,727,200 ordinary shares in its unit.
Genting Malaysia has its flagship casino business – and the bulk currently of its earnings – from Resorts World Genting, its casino monopoly in Malaysia. It also controls casino businesses in the United States, the Bahamas, the United Kingdom, and Egypt.
The Creditsights team stated: “With a larger majority stake in Genting Malaysia post-deal, we think Genting Malaysia’s ties with Genting Bhd will strengthen and we expect Genting Bhd to be more forthcoming in rendering financial support to Genting Malaysia for its New York expansion.”
“Coupled with cost savings enjoyed from lower listing and compliance fees – assuming delisting goes through –, this eases the strain on Genting Malaysia’s credit metrics,” the analysts added.
