Shares in Genting Bhd rebounded from Wednesday’s selldown after analysts assured investors that the gaming group had the financial muscle to support its 55%-owned Singaporean subsidiary, Genting Singapore plc (GenS), in its fund-raising exercise.
Genting closed 10 sen higher at RM6.97, off its intra-day high of RM7.06, while GenS was down 5 cents to S$1.14.
GenS, which is developing one of two integrated resorts in the island-state, has proposed a one-for-five rights issue of up to 2.1 billion new shares at an issue price of 80 Singapore cents each to raise an estimated S$1.6bil, to be used for “strategic opportunities” and as working capital.
The theoretical ex-rights price is estimated at S$1.13 per share and GenS is expected to trade ex-rights next Friday.
OSK Investment Bank in a report estimated the rights issue to have a 20% dilutive effect on equity and 6% dilution on GenS’ theoretical rights price.
An aerial view shows the sprawling construction site of the Resorts World Sentosa casino on Sentosa Island in Singapore. - Reuters
Nonetheless, the dilution was not seen as excessive and would place the group in a stronger position to weather any operational uncertainties while providing a larger cash pile for future acquisitions, it added.
Meanwhile, parent Genting’s entitled portion, if fully subscribed, is estimated to cost some RM2bil. Given that its net cash amounted to about RM300mil at company level as at Dec 31, 2008 (FY08), Genting would have to raise the additional funds externally.
OSK said funding was not an issue for Genting as it could tap into bank borrowings, raising convertible bonds on its 49% stake in Genting Malaysia Bhd (GenM) or up-streaming cash from GenM via dividends.
Kenanga Research shared similar views, adding that GenS would make management and licensing fees payments to Genting after its operation commenced, which should enable the latter to repay any loans.
TA Securities believes bank borrowing is more palatable as Genting has a clean balance sheet with zero debts.
Assuming its portion was fully funded by borrowings, net gearing would be at a manageable 0.26 times, it said, adding that Genting’s underlying business fundamentals remained solid.
AmResearch said the interest expense, if Genting were to borrow 100% to fund its subscription, would reduce its FY10 estimated net profit by 7% to RM1.2bil.
The research house has revised upwards its assumption of visitors to Resorts World at Sentosa (RWS) by 18% to 12.9 million in FY11 and 15% to 14.8 million in FY12, due to the expected high number of casino patrons.
OSK said the competitive threat of RWS on GenM was likely to be muted due to the vast differing price points.
The average room rate at Genting Highlands is RM75 per night while hotel room rate at RWS is estimated at S$250 to S$350. The average spending per head at Genting Highlands is RM203 per day and S$460 at RWS.
The RWS project costs S$6.6 bil and is expected to have a soft opening early next year.
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