In a move that has been questioned by analysts, Genting Malaysia announced Wednesday it would invest a further US$100 million into its US subsidiary Empire Resorts, taking its total investment since 2019 to US$724 million.
The company said in a filing that its indirect wholly-owned subsidiary, Genting ER II LLC, had on 10 January 2024 entered into a Subscription Agreement to subscribe for up to US$100 million of “Series M Preferred Stock” of Empire, with US$58 million to be used by Empire to fully repay an existing bank facility and the remaining US$42 million for working capital.
Genting Malaysia holds a 49% stake in Empire, which operates New York’s Resorts World Catskills (RWC), the recently opened Resorts World Hudson Valley (RWHV) and a mobile sports betting entity that began operations in March 2022. The other 51% of Empire is held by Kien Huat Realty III Ltd, the family trust of Genting Malaysia’s largest shareholder Lim Kok Thay.
Genting Malaysia noted that, should it choose to convert all the convertible stocks it now holds, including the new Series M stocks, its effective shareholding in Empire would soar to 89.6% by FY2030, when the stocks mature.
The company reasoned that the “proposed equity injection will enable Empire to further optimize its capital structure by reducing financial leverage and correspondingly interest expense at Empire and/or [holding company] Genting Empire Resorts LLC.
“In addition, this will allow quicker ramp up for RWHV and enable Empire to continue its focus on strengthening RWC’s operating performance to realize its full potential.
“The proposed equity injection will also allow Genting Malaysia to reinforce its position and grow its market presence in the expanding New York State gaming market to compete effectively in the northeastern US region. RWC will also be able to continue benefitting from the operating synergies with Resorts World New York City.”
However, Nomura analysts said they expect Genting Malaysia investors in general to view this latest investment – which as a related party transaction does not require shareholder approval – negatively, given that Empire continues to be loss making.
Nomura is estimating that Genting Malaysia will accrue losses from associates of MYR128 million (US$28 million) for 2023 and MYR103 million (US$22 million) in 2024, “mainly due to the continuing share of losses from Empire.”
Despite this, analysts Tushar Mohata and Alpa Aggarwal said they do not expect any major stock price reaction to this latest capital injection, mainly thanks to the ongoing recovery of the company’s Malaysian IR, Resorts World Genting.
“On the contrary, we expect the recent recovery in Genting Malaysia’s share price to continue and expect the Dec quarter (4Q23) to be seasonally strong, with further improvements expected in FY24 with Malaysia’s recent visa waiver to Chinese and Indian tourists,” they wrote.
“There are clear operational / yield improvements in all assets, and losses from underperforming assets are narrowing.”
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