GGRAsia – GEN Malaysia minority shareholders no say on Empire cash

GEN Malaysia minority shareholders no say on Empire cash

Sep 14, 2020 Newsdesk Latest News, Rest of Asia, Top of the deck, World

Minority shareholders in Genting Malaysia Bhd “were likely to be unhappy” about that firm making a US$150-million capital injection into United States-based casino operator Empire Resorts Inc, said a Monday note from banking group Nomura.

The transaction had been confirmed on Friday, in a filing to Bursa Malaysia.

The “Genting Malaysia share price declined 12 percent when it announced the first Empire [Resorts] investment in August 2019,” stated analysts Tushar Mohata and Alpa Aggarwal.

Empire Resorts – the operating entity at Resorts World Catskills in upstate New York - was acquired last year by Genting Malaysia, and vehicles held by Genting’s controlling Malaysian dynasty, the Lims.

“The latest transaction is also not going to be subject to a shareholder vote,” said Nomura. This was on the basis that the aggregate percentage ratio of Genting Malaysia’s related-party transactions with Empire Resorts over the last rolling 12-month period was 4.4 percent – based on management calculations – which was “below the 5 percent threshold needed to trigger a minority-shareholder approval vote”.

The Nomura analysts further stated: “Empire [Resorts] and Resorts World Catskills are likely to remain loss-making for the immediate future, as operations were already struggling before the Covid-19-induced demand collapse.”

Notwithstanding Resorts World Catskills reopening on September 9 after a pandemic-based shuttering since March, “it remains likely that losses into the next few quarters will remain even higher than the first quarter’s loss of US$53 million”, Genting Malaysia’s share having been “US$26 million/MYR110 million”, said the Nomura analysts.

“The reason for this round of recapitalisation is that the long-term fundraising plan for Empire, which comprised a US$475 million bond offering, did not succeed, in view of Covid-19-related uncertainties in the gaming sector,” said the institution.

“We are negatively surprised that Genting Malaysia’s backing was not enough to secure financing for Empire [Resorts],” said the Nomura team.

“Now that the resort is generating revenues again, we feel it is imperative that Empire [Resorts] secures financing soon at attractive interest rates if it is to turn profitable, lest Genting Malaysia have to shoulder further recapitalisation,” the analysts added.

The research memo said that “one mild positive” from news of the US$150-million injection of cash was that “there cannot be any more material related-party transactions until September next year without triggering a shareholder vote.

Nomura said, referring to another Genting firm, casino cruise operator Genting Hong Kong Ltd, that Genting Malaysia’s constraints regarding action on Empire Resorts “should assuage some fears of a Genting Hong Kong bailout without shareholder deliberation”.

Genting Hong Kong Ltd announced last month it would “temporarily suspend all payments to the group’s financial creditors”. The Hong Kong-listed firm said that, pending any fund-raising exercise, its board had decided the company should “temporarily suspend all payments to the group’s financial creditors (including interest and charter payments)”. That was in order to “preserve as much liquidity of the group as possible.”