Genting Malaysia announced Monday that it has entered into a Share Purchase Agreement with Kien Huat Realty III Limited – the family trust of Genting Group Chairman and CEO Lim Kok Thay – to purchase US$100 million worth of convertible stock in US gaming operator Empire Resorts.
The transaction, conducted via Genting Malaysia’s wholly-owned subsidiary, Genting ER II LLC, represents the latest in a series of investments by the company since August 2019, when Genting Malaysia acquired a 49% stake in Empire, and takes its total investment in that time to US$624 million.
The remaining 51% is currently held by Kien Huat.
Empire owns and operates New York casino Resorts World Catskills and is set to launch Resorts World Hudson Valley – a 90,000 square feet facility offering over 1,200 video lottery terminals, a bar and a lounge – this month. It also runs mobile sports betting in New York, which commenced operations in March.
Under this latest transaction, Genting Malaysia has acquired all Series G convertible shares in Empire, adding to the Series F and Series L shares it already holds. If all of those shares are fully converted into common stock, Genting Malaysia would own 76.3% of Empire by 2030 (when conversion is scheduled to take place).
In an overnight note, Nomura analysts Tushar Mohata and Alpa Aggarwal noted that the nature of transaction – with Genting Malaysia buying out part of Empire’s shares held by its controlling shareholder – would not see any new capital injected into Empire.
“We did not anticipate this transaction,” they wrote, adding, “We believe investors might react negatively to this announcement.”
The analysts note that, despite Genting Malaysia injecting US$624 million, Empire has remained loss-making at the bottom-line level and has therefore contributed negative equity. Investors may also fear further capital injection in the future.
Conversely, they suggest Empire’s improved performance of late, driven by COVID-19 recovery across the US, has reduced the need for further new equity injections, while the upcoming Resorts World Hudson Valley should help Empire’s performance further in 2023.
“The share of Empire’s losses to Genting Malaysia has been steadily shrinking, bringing it closer to breakeven,” they said.
Nomura has maintained its “BUY” rating on Genting Malaysia shares.
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