This is the second largest related party transaction (RPT) involving the Genting group in a decade, following subscription of US$442 million (RM1.42 billion) Star Cruises shares, the 10 per cent purchase of Walker Digital Gaming for US$69 million (RM222 million) and the acquisition of Wisma Genting and Segambut property for RM284.1 million.
"The purchase is a bit pricey, and delinquent shareholders are bound to raise the matter at the forthcoming EGM (extraordinary general meeting)," Affin Securities gaming analyst Chong Len Len told Business Times.
Genting, the country's sole casino operator, told the stock exchange on Thursday it will soon hold a special meeting to seek shareholders' support for the plan.
Since it is an RPT for Genting, Kien Huat Realty Sdn Bhd and Parkview Management Sdn Bhd, which collectively own 48.67 per cent of Genting, will not be able to vote at the meeting.
Likewise, Genting's chairman Tan Sri Lim Kok Thay, who is also the executive chairman and shareholder of Genting Singapore, will not be able to vote.
A slew of foreign funds such as Vanguard Emerging Markets Stock Index Fund, the Government of Singapore Investment Corp and Comgest Growth Emerging Markets own small chunks of Genting.
News of the planned purchase brought downgrades from research firms such as HwangDBS Vickers, OSK Research and Deutsche Bank. This took its toll on Genting shares yesterday.
The stock fell 12 sen to RM2.62 sen a share on heavy volume, just 11 sen higher than its lowest closing price in 52 trading weeks.
Elsewhere, Samuel Yin Shao Yang, a senior associate at ECM Libra, described the deal as value-destroying without accreting earnings.
"The fact that more than a quarter of Genting's net cash will be spent on an RPT, which is barely earnings accretive, does not sit easy with us," Yin wrote in the report. He recommended that investors sell the stock.
He reasoned that the Genting Group's rationale that only Genting Malaysia within the group has the financial muscle does not hold water.
"We beg to differ because as at December 31 2009, Genting Singapore's cash balance stood at S$2.8 billion (RM6.4 billion) and its net gearing was comfortable at 24 per cent," wrote Yin in the report.
He estimates that if Genting did not buy the casino assets from its sister company, the Malaysian outlet will have a cash war chest of RM6 billion by the year-end.
By Francis Fernandez
Business Times
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