Genting ... May10

Genting Malaysia Bhd (GenM) has invested another US$48 million (RM152.6 million) in MGM Mirage’s 4.25% convertible senior notes (2010/2015) as part of the latter’s recent US$1.15 billion placement.

This is on top of GenM’s earlier US$18 million investment in MGM’s 9% 10-year senior secured notes (2010/2020) in March this year, and US$25 million in 10.375% notes due May 2014 and US$25 million 11.125% notes due November 2017 acquired in May 2009.

This brings GenM’s total investment in MGM to US$116 million (RM371 million). Back in May 2009, Genting Bhd (which owns 48.26% in GenM in latest available filings) had also invested US$100 million for a 3.2% equity stake in MGM and US$50 million in similar senior secured notes as GenM.

The latest notes proceeds will be used to repay a portion of MGM’s revolving indebtedness under its senior credit facility. The notes are general unsecured senior obligations of MGM, guaranteed by substantially all of its subsidiaries.

Interest is payable semi-annually, and the notes are convertible anytime at an initial conversion price of US$18.58 (27.5% premium to MGM’s share price).

Expecting minimal impact to GenM’s earnings and RM5.2 billion cash reserve. The notes’ coupon does seem rather unattractive (almost similar to Malaysian Government Securities 10-year yield of 4%).

Genting group was reported to be interested in investing in the US, and this could be a pre-cursor to bigger things to come. MGM had indicated in March 2010 that it would be selling its 50% stake in Borgata Hotel Casino & Spa in Atlantic City as part of a settlement with the New Jersey Division of Gaming Enforcement (the New Jersey casino controller had expressed concern over MGM’s ties with Pansy Ho, its joint-venture partner in Macau).

There is the possible upside from opportunistic mergers and acquisitions with RM5.2 billion cash reserve.