Setback for Genting

Delay in bill on gaming in Florida takes its toll on share prices

PETALING JAYA: Shares of Genting Malaysia Bhd and parent Genting Bhd fell after Florida's House of Representatives committee postponed a vote on a bill to expand casino gaming in the state, putting a dent on the gaming empire's plans to expand into the sunshine state.

Genting Malaysia slumped 20 sen or 4.9% to RM3.81 with 24.04 million shares changing hands, while Genting shed 50 sen or 4.5% to RM10.50 with 12.48 million shares traded.

Last Friday, the bill's chief sponsor Erik Fresen asked for the bill to be withdrawn after it became clear that it lacked the votes to progress.

Under Florida law, a bill must be passed by at least one committee before it could move to the next phase.

With the house not planning to reconvene before the end of the legislative session in March, the bill is unlikely to make any progress until next year.

The delay dampened Genting's plans to build a US$3.8bil casino and 5,200-room hotel complex on Miami's Biscayne Bay.

Assuming the liberalisation of casino gaming in the state would take off, it would have paved the way for up to three destination resorts in Florida with casino-style game offerings and position the state as the second largest gaming market in the United States worth US$3.8bil, behind Nevada's US$10.4bil market.

CIMB Research analyst Loke Wei Wern said in a report that although the recent development was a surprise, the regulatory roadblock did not mean that casino gaming in the state is ruled out.

“But it does mean a longer wait for Genting Malaysia and other gaming companies hoping to penetrate Florida,” she said.

To date, Genting Malaysia has forked out US$450mil for land and buildings in Miami in what CIMB saw as a tactical move to position itself for the potential liberalisation of casino gaming.

“Even if casino gaming is a no-go, the buildings and land bank could still be used for non-gaming purposes since tourism is a huge business in Florida,” she said.

She advised investors to keep their investments in Genting Malaysia.

“Its investment proposition lies in its defensive earnings and strong cash flow, which appeal in uncertain times, and its gradual transformation into a formidable global player,” she said.

Hong Leong Investment Bank Research said in its previous meeting with Genting Malaysia, the latter indicated that it would continue with the project whether or not the casino facility was approved.

“In a worst case scenario that the bill is not approved, Genting Malaysia would be taking a longer time frame of 10 to 15 years to finish the mega resort development.

“Taking the US$3.8bil project spreading across 10 years to 15 years, Genting Malaysia would incur approximately US$253mil to US$380mil (RM789mil to RM1.1bil) additional capital expenditure per annum, which should not be an issue given its net cash of RM2.2bil to RM4.8bil and free cash flow of RM800mil to RM1.8bil from 2011 to 2013,” it said.

By CHOONG EN HAN, han@thestar.com.my