27 August 2010

Genting Malaysia – Drying up

The past two months have seen a slew of activities within the Genting group. Other than the spectacular result shown by Genting Singapore (GENS), Genting seems to be treating unfairly to another son – Genting Malaysia (GENM).

1st, GENM to buy Genting UK from GENS for £426m or RM2.1bn. (See figure 1)

2nd, GENM has won a bid to develop and operate Aqueduct racino in New York City. (See figure 2)

Well, the Aqueduct deal appears promising, with its key appeal being its strategic location just two subway stops from the New York subway. However, the UK assets seem to be too expensive for GENM to swallow.

According to CIMB research, the acquisition price seems slightly high at 1.2x price/book value. Recall GENS originally bought these assets back in 2006 for £699m and three impairment charges taken since then have reduced the book value to the current £289m.

No wonder minority shareholders are against the deal. Surprisingly, the proposed acquisition gets the go-ahead signal after a 2-hour session. Anyway, congratulation to Genting’s another successful related party transaction. (I have to say)

And, because of the above two deals, GENM’s net cash hoard of RM5.27bn will be reduced to RM0.8bn (assuming total initial investment cost of US$730m for the Aqueduct deal).

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