Genting- A Route to Macau?

Jonathan Cheng did a write-up today expressing his concerns about the possibilities of a Genting entry into Macau's casino business.

I paraphrased his article.

Fresh from a recent move by by Genting Bhd to take a 3.2 per cent stake in MGM Mirage and buying a US$100m debt notes, the talk continues among punters that Genting is after a foothold in Macau, where MGM has a joint-venture casino and resort with gambling heiress Pansy Ho.

Genting dominates in Malaysia and has a huge new resort ready to start in Singapore. However, Macau the jewel in the casino landscape continues to elude it.

Macau, the most explosive growth story for the gambling industry is still hampered by a global recession and ham-stringed by strict visa restrictions imposed on mainland Chinese visitors.

Macau watchers are of the view that any attempt by Genting to get into the lucrative market may be difficult, despite a potential window of opportunity opening before it.

Last month, MGM said regulatory enforcers in New Jersey had criticized MGM's relationship with Ho, the scion of Stanley Ho's family, calling her "unsuitable." Experts say any ruling by the New Jersey Casino Control Commission against the partnership could jeopardise MGM's presence in either New Jersey, where it owns half of the Borgata in Atlantic City, or in Macau.

This in turn could leave an opening for an eager beaver like Genting, whose management said publicly last year that Macau holds attractive opportunities, despite the fact that all of Macau's gambling concessions were handed out years ago.

Just after New Jersey's report was made public, Genting bought US$100 million (RM350 million) of MGM debt, which sent Genting shares soaring on speculation about what the debt purchase could mean. On Tuesday evening, MGM confirmed that it had sold a 3.2 per cent equity stake to Genting. A spokeswoman for Genting yesterday declined to confirm or comment on any equity stake sale, which was first reported in the Financial Times.

If a piece of Macau is what Genting is after, significant obstacles could stand in the way.

MGM, experts say, if confronted with a choice between giving up New Jersey or Macau, it is still uncertain if MGM would want to relinquish its beachhead in the promising Chinese market. And even if MGM should look to pull out of Macau, Pansy Ho would have the right of first refusal on any stake sale. There is also the sticky legal question — still untested — about if, how and under what conditions a Macanese gaming concession could be transferred.

That's not all: If Genting were to jump into a partnership with Ho, it would likely draw regulatory scrutiny from Singapore, where Genting's commitment to its Resorts World project is more or less non-negotiable. Singapore's government could balk.

That all adds up to a daunting set of "what ifs," but given how quickly things are moving in the gambling sector, it may be wise not to rule anything out. Investors seem to see opportunity in Genting's moves to get a piece of MGM, pushing Genting's Malaysia-listed stock up by nearly 24 per cent in the three weeks since Genting first made public its purchase of MGM debt.

Of course, it is possible that Genting has something other than Macau on its mind. After all, MGM has attractive assets and a big presence in Nevada. It also has interests in other markets, including a proposed project in Vietnam.

Genting's purchase could also be a smart move from an opportunistic perspective, should MGM weather the financial crisis, catching the Las Vegas icon at the bottom of the market. The US$7-a-share offer that MGM made last month comes at a sizable discount to its historical trading range.

MGM was forced to sell the stake in a round of equity fund-raising last month, in part to help it finish its massive City Centre project in Las Vegas. — Wall Street Journal (Jonathan Cheng, Business Times, Singapore)