Genting Berhad: Robbing Genm?

Salvatore Dali in his blog has provided some more details on the mother GenB) and daughter(GenM)transaction.

Along the eay, are they screwing up the 'minority interests'

Let us read what Salvatore has to say. I append from his blog.

GenM had entered into S&P agreements with parent GenB to acquire to wit:

a) 25-storey Wisma Genting office building for RM259.6m (including RM46.9m debt owed to Genting Berhad) ; and
b) Segambut land comprising 2 adjoining land parcels with total area of 380,906 sq ft for RM24.6m (including RM8.6m debt owed to Genting Berhad) .

Both acquisitions will be financed from Genting Malaysia's cash reserves ofRM5.2b as of 30 Sept 09. Independent market valuation for Wisma Genting and Segambut Land at RM277m and RM25.8m respectively puts this at a discount of 6.3% and 4.7% of market valuation respectively.That works out to RM635 per sq ft for Wisma Genting and RM65 per sq ft for the Segambut Land.

Genting Malaysia is currently the single largest tenant for Wisma Genting, occupying 8 floors and 2 basement levels for an annual rental of about RM3.0m. Apart from the rental savings, the group will also receive an annual rental income of RM17.3m from other tenants. Together with the savings, investment in Wisma Genting will provides a decent yield of 0.7%. Annual rental savings of about RM0.3m is also expected from the Segambut land as the group is the sole tenant renting part of the land as storage area for its buses and limousines . As the Segambut land is only 12% occupied as storage, there is potential to convert the remaining land for new property development.

Salvatore's contentions:

Firstly, he believes the transaction is not transparent. Most related party transactions aren't nor are they above board. In this case the same valuer was used for the transaction by both companies.

Secondly, he touches on the Board composition of Gen M. He listed the directors as:

Alwi bin Jantan - Independent director
Wan Sidek Rahman - Independent director
Mohd Haniff Omar (on Genting Bhd board)
Lim Kok Thay (on Genting Bhd board)
Clifford Herbert - Independent director
Loh Bee Hong (on Genting Bhd board)
Lin See Yan - Independent director - (on Genting Bhd board as Independent director as well)
Quah Chek Tin - Independent director - (on Genting Bhd board as Independent director as well)
Mohd Zahidi Zainuddin - Independent director
Thillainathan Ramasamy - Genting Bhd's Independent director
Chin Kwai Yoong - Genting Bhd's Independent director
Nik Hashim Nik Yusoff - Genting Bhd's Independent director

He thought it ludicrous that 2 same independent directors should sit on both companies. This certainly make them hardly independent, so he claimed.

According to Salvatore,dealings but must appear to be transparent as well. The board's composition for both boards have more double counts than really independent directors. Something needs to be done already with regards to the board's composition, because if not, every single related party transaction now and in the future will ALWAYS be seen in a "conspiratorial" manner. For such an important and visible and international listed company, professionalism and global best practices should be adopted. The company should try to shed its "family company" image if it's to continue to appeal to global investors respect and recognition for being a well run, transparent, professional and 'above board at all times' kind of company.

Thirdly, he took a shot at the cash extraction - The move may be interpreted as the parent extracting cash from GenM. Technically, the move actually provides good yields to Genting Malaysia. Questions will surface as to why GenM is being used to keep properties and land? Is that a long term strategy to accumulate properties or an ad hoc move? Why is GenB hiving off assets? Does it mark their refocus in the long term strategy to be purely gaming. If so,there are a lot of shedding to be done.

GenB has a varied portfolio.

a) Genting Malaysia 47%
b) Genting Singapore 54.3%
c) Genting Plantations 54.7%
d) Landmarks: 30.3%
e) Oil & Gas ?? (RM1.9bn market value)
f) Power ?? (RM3.0bn market value)
g) Licensing & mgmt fees ?? (RM5.7bn market value)"

I guess Salvatore is unhappy at the way GenB is 'playing out' minority shareholders of Gen M by hiving away its assets to its subsidiary to tap on its huge cash hoardings. That may well deprive GenM to take advantage of profitable future corporate projects as well as the realization of a potential 'super'dividend payout to minority shareholders.