Bjtoto ... Jan11

Speculation is rife that BJtoto will be privatized by its holding company … BJLand.

Currently, BJCorp directly and indirectly via BJLand, holds about 51% in BJToto. Privatization exercises among NFOs are not rare because gaming companies are known for their strong cash flow.

The apparent reason for such a move is that BJLand’s rm711 million exchangeable bonds issued in Aug 2006 are due for redemption on Aug 15, 2011. The bonds are pledge to BJtoto shares. This means the property arm of BJCorp is in need of cash.

The bondholders have the option of either converting the debt papers into BJToto shares or receiving cash payment. Whatever the case, it is an issue that BJLand has to face.

If bondholders were to convert the debt paper into BJToto shares, BJLAnd’s shareholding in the NFO would be diluted. This would not augur well for BJLAnd since it has enjoyed good dividend payment from BJTOto.

One of the reasons driving the possibility of BJToto’s privatization is to keep the Berjaya group (Direct & Indirect)’s interest in BJToto, whish is some 51% intact.

BJLand is likely to use the dividends received from BJToto to redeem the exchangeable bonds. However, BJtoto’s operating profit has dwindled recently mainly due to higher taxes.

Hence it makes more sense for BJLand to take the complete control of BJToto’s cash. Privatizing BJtoto would give BJLand more access to the dividends, as BJtoto would be a wholly owned unit of BJLand. Also, BJLand would be able to get some cash to help it redeem the bonds.

If BJCorp were used as a vehicle to privatize BJtoto, however, it would be a cash absorbing exercise for the former, as it holds a very small direct stake in the gaming company. The bulk of about 43.5% stake is held via BJLand.

It ahs been reported that the entry of a strategic investor could be a main driver for the potential privatization of BJtoto. Privatization of BJtoto would also enable BJLand to realize some value on its investment in the NFO if a strategic partner were to take a stake in BJtoto later. The proceeds from the equity sales could be used to redeem its exchangeable bonds.

Industry observer says it is possible that BJtoto’s shareholders will privatize BJToto before bringing in a strategic partner.

Based on BJToto operating cash flow, BJLand wpuld have no problems raising capital for a potential privatization via borrowings.