The Genting Rights Poser

CASINO developer-operator Genting Singapore has turned again to shareholders to raise $1.63 billion in the second biggest rights issue here so far this year. Unveiling the major cash call yesterday, Genting said its $6.59 billion Resorts World at Sentosa (RWS) is ‘on track, both in terms of project costs and timing, for a soft opening in early 2010′.

The proceeds ‘will strengthen the company’s financials and put the company on a strong position to tap strategic opportunities’, said Genting Singapore’s
managing director, Justin Tan.

However, analysts believe the funds will come in handy after earlier cost overruns at the RWS. The company is offering shareholders one rights share for every five existing shares held at cost of 80 cents apiece. The offer price represents a 32.8 per cent discount to Tuesday’s closing price of $1.19 when it was last traded – a record high. The stock has rallied 70 per cent since the start of July.

This is the second time Genting has sought funds from shareholders in the past two years, after it raised about $2 billion in a rights issue in August 2007. Genting Singapore is a unit of Malaysian gaming giant Genting Berhad, which owns 54 per cent of Genting Singapore. It has pledged to subscribe to one billion rights shares it is entitled to.

Mr Tan said support from banks had been very encouraging despite the uncertainty in the capital markets. About 60 per cent of the proceeds will be used to fund future acquisitions and investments. The funds may also be used to enter joint ventures, strategic collaborations or alliances ‘in areas related to its principal business in the leisure, hospitality and gaming sectors, as and when such opportunities arise’, it said in a statement to the Singapore Exchange.

The remaining funds will be used as working capital, which includes repayment of bank borrowings. The company probably took advantage of the sharp run-up in stock prices to get some money into the kitty,’ said OCBC Research analyst Carey Wong. ‘We see it as an insurance move to cover cost overruns of (RWS) and interest repayments of its huge debt and convertible bonds.’

There have long been concerns about cost overruns for the project. Genting has lifted cost estimates for the resort twice – in November 2007, the price tag for the resort was raised from $5.2 billion to $6 billion due to higher construction costs. Then in February this year, it raised the figure to $6.59 billion. The potential cash infusion of $1.63 billion will ease some pressure from interest payments, given that it is sitting on a $4 billion syndicated loan, analysts said.

Of Genting’s rights issue two years ago, about half, or some $1.19 billion, was used to finance the integrated resort. It also got a $4 billion syndicated credit facility in April last year to finance the resort.

Genting’s latest cash call came as something of a surprise, given that it said in its last statement that additional funding would come from operating cash flows when the complex opens next year. Genting Singapore, Britain’s No. 1 casino operator, may be looking to expand its Asian footprint. Market observers say potential investments on the radar could be Philippines’ Subic Bay, as well as in Macau.

Earlier in May, the Lim family which owns the Kuala Lumpur-listed flagship firm stunned the market by selling its entire 9 per cent stake in Genting Singapore for $615 million.

It was offloaded to institutions in a private placement at about 72 cents a share, representing a 16 per cent discount to the previous day’s closing price of 86.5 cents.

DBS Bank and CIMB Bank are arranging the offer. The issue will be fully underwritten by the two banks, as well as JPMorgan, RBS, CLSA, Deutsche Bank, HSBC and UBS.

The provisional allotments of rights shares may be accepted, and applications for excess rights shares may be made commencing from Sept 28 to Oct 12.

CapitaLand mounted the biggest rights issue so far this year, raising $1.84 billion in an offer announced in February.

So, Genting singapore shareholders, can you quickly pony up the funds?

[The source is from the Singapore Straits Times – 10th September 2009]