Genting Singapore In Cairo - Some Perspective Please

Genting Singapore said on Tuesday that one of its subsidiaries has been selected as the new operator of a casino in Egypt. The firm said Genting Casinos, an indirect wholly-owned unit of Genting UK, has entered into a casino concession agreement with Misr Hotels. Genting UK has been awarded the casino concession for The Nile Ritz Carlton Hotel in Cairo for an initial period of 10 years. It plans to open the new operation under the brand "Crockfords on the Nile".

The move is part of Genting's strategy to expand its casino resort network. It will also strengthen and develop Genting UK's position in the premium market through its key high-end London casino clubs, Crockfords, Colony and Maxims.

The Nile Hotel, located on the banks of the Nile and in the heart of the Egyptian capital of Cairo, will undergo a major refurbishment. The hotel is considered one of the iconic developments in Cairo which has contributed to the Egyptian travel industry since it first opened in 1958.

Renovation work is expected to be completed in early 2012. Genting said the Casino concession agreement is not expected to have any material impact on its earnings in the current financial year.

My Take: If my readers can remember, in September last year I went to Cairo and had a zen moment with my camel boy. Anyway, yes, I did visit the casino as I was just as surprised as anyone that there were casinos in Cairo.

There are about 25 casinos in Cairo already. Each casino has to be within an "approved hotel", usually only one floor or a section of one floor.

All casinos in Cairo are not open to Egyptians but only to tourists, and naturally those of Islamic faith are prohibited as well. Let me tell you that the actual number of people playing there were very few. You almost can have the table all to yourself, and I am not kidding.

Hence all the casinos have less than 10 tables and less than 20 slot machines. The actual impact of having one at Nile Ritz Carlton Hotel is that it will be glitzy, but let me assure you that at any one time you will find less than 20 people playing and you can probably only put in 20 tables max. Anymore tables will just be a waste.

One of the bigger casinos in Cairo is Inter-Casino at the Ramses Hilton Hotel. It has 18 tables and 42 slots. Another is Casino Royal at Movenpick Jolie Ville Resort (yes, Movenpick) with 16 table games and the biggest number of slot machines at 154. The other big one is Taba Hilton & Casino with 19 table games and 76 slot.

Hence people should not be overly excited with the Cairo project, not when there are already 25 operators, and all catering to tourists. This is like adding two gaming tables at Resorts World, seriously folks. The problem is not with Ritz Carlton or Genting, its the number of tourists that actually visit Cairo, and spread that out to over 25 casinos in the one city - that's the problem.

Yes, being with Nile Ritz Carlton is probably the grandest of the lot, and on the Nile some more. But, do you know how many 5-6 star hotels there are on the Nile already - Four Season Cairo Nile Plaza, Intercontinental City Stars, Sheraton, Sofitel, etc... Its just another one.


p/s photo: Fiona Xie

Genting Babies - Left Hand, Right Hand & Minority Interests

I am not sure the term "minority interest" appears in Genting's corporate vocabulary.

Genting Malaysia (Resorts) had entered into S&P agreements with parent Genting Berhad to acquire:
a) 25-storey Wisma Genting office building for RM259.6m (including RM46.9m debt owed to Genting Berhad) ; and
b) Segambut land comprising 2 adjoining land parcels with total area of 380,906 sq ft for
RM24.6m (including RM8.6m debt owed to Genting Berhad) .

Both acquisitions will be financed from Genting Malaysia's cash reserves ofRM5.2b as of 30 Sept 09. Independent market valuation for Wisma Genting and Segambut Land at RM277m and RM25.8m respectively. The acquisition price for Wisma Genting and Segambut Land imply a 6.3% and 4.7% discount to the market valuation respectively.

The purchase price at: a) RM635 per sq ft for Wisma Genting; and b) RM65 per sq ft for Segambut Land. Rental savings and income from property investments. Genting Malaysia is currently the single largest tenant for Wisma Genting, occupying 8 floors and 2 basement levels for an annual rental of about RM3.0m. Apart from the rental saving , group will also receive an annual rental income of RM17.3m from other tenants. Together with the savings, investment in Wisma Genting will provides a decent yield of 0.7%. Annual rental savings of about RM0.3m is also expected from the Segambut land as group is the sole tenant renting part of the land as storage area for its buses and limousines . As the Segambut land is only 12% occupied as storage, there is potential to convert the remaining land for property development.

#1: You cannot just say to yourselves that this related party transactions was transparent and above board. You must have the appearance of being transparent as well. Having the same-one valuer does not look good. By right, both the companies should appoint their own valuer, not just one valuation company.

#2: Board composition:
Genting Malaysia (Resorts)
Alwi bin Jantan - Independent director
Wan Sidek Rahman - Independent director
Mohd Haniff Omar (on Genting Bhd board)
Lim Kok Thay (on Genting Bhd board)
Clifford Herbert - Independent director
Loh Bee Hong (on Genting Bhd board)
Lin See Yan - Independent director - (on Genting Bhd board as Independent director as well)
Quah Chek Tin - Independent director - (on Genting Bhd board as Independent director as well)
Mohd Zahidi Zainuddin - Independent director

Thillainathan Ramasamy - Genting Bhd's Independent director
Chin Kwai Yoong - Genting Bhd's Independent director
Nik Hashim Nik Yusoff - Genting Bhd's Independent director

How can you justify having 2 independent directors THAT sits on both companies, one which owns 47% of the other, and call those two directors as independent directors??? Somebody give us a proper business dictionary please!!!!

You not only need to be transparent in your dealings but must appear to be transparent as well. The board's composition for both boards have more double counts than really independent directors. Something needs to be done already with regards to the board's composition, because if not, every single related party transaction now and in the future will ALWAYS be seen in a "conspiratorial" manner. For such an important and visible and international listed company, professionalism and global best practices should be adopted. The company should try to shed its "family company" image if its to continue to global investors respect and recognition for being a well run, transparent, professional and 'above board at all times' kind of company.

#3 Cash extraction - The move may be interpreted as the parent extracting cash from Genting Malaysia. Technically, the move actually provides good yields to Genting Malaysia. But that is not the point or the major concern - if its good for one party, it must be not so good for the other party. Questions will surface as to why Genting Malaysia is being used to keep properties and land, is that a long term strategy to accumulate properties or a slipshod move, neither here nor there. Why is Genting Berhad hiving off assets, is that a long term strategy to be purely gaming - NO of course, have you had a look at Genting Berhad's portfolio???

#4 - Genting Berhad's portfolio dissection - Please tell me how the RPT make sense when in your portfolio of assets you have the following:
a) Genting Malaysia 47%
b) Genting Singapore 54.3%
c) Genting Plantations 54.7%
d) Landmarks 30.3%
e) Oil & Gas ?? (RM1.9bn market value)
f) Power ?? (RM3.0bn market value)
g) Licensing & mgmt fees ?? (RM5.7bn market value)

If you wish to do as you like, then for heaven's sake take the whole bloody thing private. If you want to run it like a family concern, take the whole thing private. You cannot try and tap capital and have investors on board (no matter how small they may be compared to the controlling interest) and still run it like its a family affair.

Considering that the mainshareholder of Genting Berhad shows only Kien Huat Realty with 32.32%, the next few substantial shareholders stand at: 3.8%; 3.57%; 3.3% and 2.6% ... that clearly shows that the free float is huge, i.e. the minority interest is bloody huge.

To the minority interest of Genting Berhad, I am sure having an open tender would have shut 99.99% of us up, it would have shut me up for sure. An open tender may have gotten a better price for Genting Berhad ~ why leave that question mark in our minds, leaves a bloody bitter taste even for such a small transaction. If we cannot "trust you" in these small transactions, how can we trust you in bigger ones?

p/s photo: Dhini Aminarti

Whoops!!! There It Is - Resorts World

Genting Bhd., Asia’s largest listed casino operator, bought a 3.2% stake in MGM Mirage for US$100 million, MGM spokesman Gordon Absher said. The purchase last month was reported by The Financial Times yesterday. Genting and Resorts World each subscribed for USD50m of MGM's senior secured notes on 14 May '09 as well.

The share purchase was not disclosed to Bursa Malaysia. The shares purchased were part of MGM’s US$1bn equity offering priced at US$7.00/share in May 2009 to help repay the group’s swelling debts. The acquisition of 14.3m shares in MGM represents a small percentage of MGM’s total share base of 441m shares, and an even smaller 2% of the group’s gross cash balance. The acquisition is classified as an investment in the group’s balance sheet with no impact on earnings - however, strategically it makes a lot of sense to Genting and Resorts as that would allow them a foot in while MGM grapples with huge refinancing issues ahead. The acquisition price values MGM at 0.48x PBV and 11.2x FY10 consensus estimated EV/EBITDA, which may be relatively expensive given MGM’s high gearing and potential for future cash calls and hence dilution.

MGM is currently in discussions with its bankers and its strategic partner Dubai World to help salvage its US$8.6bn City Centre Las Vegas Resort development project, which could potentially require a new partner if MGM, Dubai World and its bankers are unable to come to an agreement on the necessary funding to ensure the completion of the project. However, Genting and Resorts are not interested in Las Vegas properties anymore. They are really keen to get a slice of the Macau action. Even after raising US$1bn from its recent equity raising exercise, MGM is still burdened with a fair degree of debt on its balance sheet with an estimated debt to equity ratio of 249%, or net debt of US$12bn. MGM would have to dispose of more assets or stakes in its existing projects to reduce the risk of bankruptcy, even with its US$2.5bn secured notes and equity raising exercise. This will certainly open up opportunities for the Genting group to participate in future project partnerships with MGM, or make outright casino acquisitions, at relatively appealing valuations.

Macau remains the group’s key geographical expansion focus as it continues to access acquisition opportunities. It is noteworthy that the Nevada gaming commission has hinted broadly that they did not particularly like MGM to be in partnership in Macau with the Ho family. While the commission's views are not binding and not enforceable, it does carry some weight. A very convenient transaction would be to swap the Ho's family stake in MGM's partnership to Genting or Resorts.

Having said that, I prefer Resorts World to Genting. One, is the overall exposure to Genting Singapore. Two, Resorts is the better vehicle for any substantive M&A given its large and growing net cash pile of RM4.9bn. This is further reinforced by the fact that management has continued to maintain that Genting will remain as an investment holding company. Resorts would have to upstream a significant portion of its cash to Genting for it to undertake large M&As.

The purchase utilized only 11% of Genting’s net cash as at end 1Q09. 48% subsidiary, Resorts World’s with its net cash of RM4.6b as at end-2008 could easily acquire a 40% stake in MGM. MGM owns 16 properties in the US and has a 50% interest in four other properties (one in Macau). Its net gearing position as at end 1Q09 stood at 318%. Should MGM decide to sell its casino assets to pare its debt, Genting will likely be well positioned to acquire them. Given that MGM recently raised USD2.5b in capital, which is insufficient to plug the holes. it is likely that MGM is planning some major asset disposals very soon.

I like Resorts World up to 2.95. Again, like I said before, I am only interested in returns of at least 30%-50% in 6 months.

4715	RESORTS	2.870	-0.010	46,384
4715CH	RESORTS-CH	0.135	-0.005	7,886
4715CI	RESORTS-CI	0.155	-0.005	24,790
4715CJ	RESORTS-CJ	0.175	-0.005	5,657

p/s photo: Eva Huang Shenyi

Lim's Family Sells Stake In Genting Singapore

Genting and Resorts had a nice run for the past two weeks. I did not highlight both companies as buys because I am not convinced that the gaming industry restructuring and pain is over by a mile. But if they want to go up, let them. I do not have a strong case against them except that the Sentosa project cost overruns needs to be detailed out to investors. I did not like the left hand right hand transaction between Lim Kok Thay's private company to the listed vehicle a few months back.

I like the fact that Genting and Resorts are much better off than most of the other gaming giants who have over leveraged substantially. I like the fact that most operators in Macau are bleeding and that Genting/Resorts should be able to profit by moving in as a white knight to secure a foothold in Macau.

The sale, through the family’s vehicles Golden Hope Ltd and Lakewood Sdn Bhd, was aimed at boosting the liquidity of the stock, according to the bookrunners .... eeerrr... Genting Singapore is already very liquid thank you very much, next reason please!!! That's like tricking the ghost to eat taufoo!!! Hmmm... who is the ghost here??

I don't like it when the Lim family's private vehicles start to sell down shares in Genting Singapore. Suffice to say that they think Genting Berhad's 55% stake in Genting Singapore is deemed sufficient, or so they say. As in anything, remember Gamuda's Lin selling his stake substantially, supposedly to facilitate estate planning for his family... well we know what happened to Gamuda after that. Its never a good sign. Chances are that Genting Singapore will have to pile on more borrowings, from Resorts or Genting Berhad as I really think the cost overruns issue has not ended. If it has, please come forward with absolute transparency, how much was budgeted before the project started, what is the variance now, how will that impact the payback period, when can Genting Singapore start paying back dividends? Its looking to be a very very long investment.

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Finance Asia: Two investment companies controlled by Malaysia's Lim family were in the market last night attempting to divest their direct 9% stake in Genting Singapore, a Singapore-listed subsidiary of the Genting Berhad group. Genting Singapore is involved in international casino operations and the development of integrated resorts, including a new casino resort on Singapore's Sentosa Island, which is due to open in the first quarter of next year.

The 853.88 million shares were offered in a range between S$0.72 and S$0.76 and late last night the indication was that the price would be fixed at the bottom for a total deal size of S$614.8 million ($425 million). However, the deal wasn't launched until 8.30pm Hong Kong time yesterday and, at the request of a number of Asian investors, sources said the bookrunners had agreed to open the books for a short while before the start of trading this morning to give those who were unable to make an investment decision last night a second chance.

As a result, the terms will not be fixed until this morning. However, the deal was already covered last night and the books included close to 40 accounts. The buyers ranged from specialist gaming investors to long-only Asia funds to deal players who liked the big discount.

The price range corresponded to a discount range of 12.1% to 16.8% versus yesterday's close, which at first glance looks well wide of where most other recent Asian placements have priced. However, the share price has rallied 18.5% over the past three trading sessions, which means investors may have needed the additional incentive to invest at current levels.

There is a lot of positive momentum surrounding the company at the moment however and the share price has more than doubled from the beginning of March when it matched its 2009 low of S$0.415. The company has caught the attention of investors as, contrary to other casino and resorts developers, it is seemingly having no problems to stick to its completion target.

This was confirmed two weeks ago in connection with Genting Singapore's first quarter earnings release, when the management said that it will deliver the Sentosa resort on time and on budget. It also stressed that there is no need to raise more money for this project. This is in sharp contrast to some of its larger rivals like Sands and MGM, which are already laden with debt and have been forced to delay projects because of difficulty in securing the necessary funding. In fact, market talk has it that MGM is looking to sell its 50% stake in MGM Grand Macau and Genting may be a potential buyer.

Aside from Singapore, Genting currently has casino and leisure operations in Australia, the Americas, Malaysia, the Philippines and the UK, but nothing yet in Macau.

Sources say the fact that the Lim family is selling its entire direct stake in Genting Singapore, which it holds through investment companies Golden Hope and Lakewood, isn't a reflection of its views on the company. But with the share price having gone up so much in such a short time, it makes sense for them to monetise part of their holdings. It will also streamline the family's holding in the casino business through one vehicle. The family will still control 55% of Genting Singapore through Malaysia-listed conglomerate Genting Berhad.

J.P. Morgan and UBS acted as joint bookrunners and underwriters for the deal.

p/s photos: Linda Chung Kar Yan