Genting Bhd/Resorts World Bhd ... May 09

Genting Bhd has invested US$100 million in bonds of rival MGM Mirage Inc, a US-based casino operator, to secure better returns for its cash. It subscribed for senior notes that are secured against the Bellagio Hotel and Casino and the Mirage Hotel and Casino, both located in Las Vegas.

Genting Overseas Holdings Ltd, a wholly-owned unit of Genting, invested US$50 million while Resorts World Ltd, a unit of Resorts World Bhd, also subscribed for the same amount. Resorts World Bhd is a subsidiary of Genting.

Half of the total US$100 million are notes that pay annual interest of 10.375 per cent and are due in May 2014. The rest carry a rate of 11.125 per cent and they mature in November 2017.

The notes are part of a US$1.5 billion sale made by MGM to partly settle some existing debt. MGM announced the completion of the exercise on May 19 2009.

The debt is also secured against high quality gaming and entertainment assets in Las Vegas. MGM, which is listed on the New York Stock Exchange, owns and operates 16 properties located in Nevada, Mississippi and Michigan in the US. It also has 50 per cent interest in four other properties in Nevada, New Jersey, Illinois and Macau. For the year to December 31 2008, MGM group made net revenue of US$7.2 billion.

Going Forward …

Genting group’s recent subscription of US$100mil senior secured MGM Mirage Inc notes has raised the possibility of Genting’s potential entry into the Macau gaming market.

It would not be surprised if the subscription was more than an interest-yielding exercise given recent press reports that the New Jersey Division of Gaming Enforcement has advised that MGM Mirage should be directed to disengage from its Macau joint venture (JV) partner Pansy Ho, who has a 50% stake in MGM Grand Macau. The verdict was in response to the Las Vegas gaming group’s application to renew its casino license for Borgata Hotel Casino in Atlantic Cit in the US.

If complications in the MGM-Pansy Ho JV led to the departure of either party, Genting group’s subscription to the bonds would not hurt its chances of potentially filling the void.

Industry observers continue to believe that an eventual presence in Asia’s gaming hub of Macau would strengthen the group’s position as a formidable regional gaming player.
It is believed that MGM may potentially divest its stake in MGM Grand Macau under regulatory pressure. Should MGM Grand Macau be up for sale as postulated, it could offer Genting an excellent opportunity to immediately access the Macau gaming market without going through the lengthy asset building process.

Project cost for the MGM Grand Macau was reported to be about US$1.3bil. Even if MGM demanded a premium on top of its 50% stake of US$0.7bil, Genting would have no problem funding the acquisition through Resorts World Bhd, which was still sitting on a huge cash pile of RM4.55bil (US$1.3bil) as at Dec 31, 2008.

The acquisition of MGM Grand Macau, if it materialises, could be a huge re-rating catalyst for both Genting and Resorts.

The notes were offered as part of a US$1.5bil placement execrcise, the proceeds of which will be used by MGM to part settle its outstanding debts and for general corporate purposes. The notes are secured by a first-priority lien on substantially all the assets of the Bellagio Hotel and Casino and the Mirage Hotel and Casino in Las Vegas.

The intention of to acquire income generative assets is certainly a step in the right direction. Bu the structure of the acquisition deal and the pricing are separate issues.

Will Resorts World be Genting’s group vehicles for assets acquistions or will it be Genting, in which the Lim family owns a direct 32% stake?

If the acquisition is done at Genting level, how will management channel Resorts World’s casino into the parent, considering the latter has never been generous with dividends?

Related:-
Genting Intl Plc ... Jan 2009
Genting Bhd/Resorts ... June 2008
Genting ... the Edge