Genting Malaysia will acquire the 10% economic interest in New York state entity Empire Resorts Limited that it doesn’t already own from the family trust of Lim Kok Thay and family for US$41 million plus added debt, the company has revealed.
The Membership Interest Purchase Agreement was announced via a Bursa Malaysia filing on Friday and will include both the US$41 million cash consideration plus acceptance of an intercompany loan owing by Empire to the Lim’s Kien Huat Realty III (KH) Limited amounting to US$39.7 million.
KH currently holds 51% of Empire Resorts common stock with Genting Malaysia holding the remaining 49%, however Genting Malaysia has equity accounting 90% of the entity’s losses because it also owns Empire convertible preferred stock.
Lim is Chairman and CEO of Genting Berhad and holds a personal 44.7% stake in the company, which in turn owns 47.1% of Genting Malaysia. Lim is also Deputy Chairman and CEO of Genting Malaysia.
Empire’s assets include Resorts World Catskills, located 90 miles north of New York City, Resorts World Hudson Valley and mobile sports wagering operator Resorts World Bet.
In a note, Nomura analysts Tushar Mohata and Alpa Aggarwal described the transaction as negative given that Empire has remained loss-making at the net income level despite multiple capital injections by shareholders. Genting Malaysia has previously invested US$720 million into the company since 2019, they added, and will likely have to continue injecting capital to support the business.
“Similar to previous tranches, we are negative on this latest transaction as well and think that investors are likely to perceive it as another related-party transaction detrimental to Genting Malaysia’s prospects,” they wrote.
“This is because there does not yet appear to be a clear path to sustainable turnaround in Empire’s performance [and] after this acquisition, with Empire becoming 100% owned by Genting Malaysia, it is likely that Genting Malaysia will need to keep injecting capital to support Empire’s business.”
Genting Malaysia would also need to consolidate a larger share of losses from Empire.
In response, Nomura has downgraded Genting Malaysia stock from Buy to Reduce, explaining that it is now factoring in higher interest, depreciation and associate losses due to the Empire acquisition and on top of the company’s already subdued post-COVID performance.
“Our previous expectation of an earnings recovery (for Genting Malaysia) post COVID-19 reopening has not materialized, due to the structurally high cost base of the company after undertaking substantial capex, which has not yet yielded desired returns,” the analysts said.
The downgrade follows weak 4Q24 results, a subsequent dividend cut and continued de-rating which Nomura expects to continue until there is a clear earnings turnaround.
In a separate note, Maybank Investment Bank said of Genting Malaysia’s move to fully acquire Empire Resorts that, “We do not view this proposal positively but hope that this will be the last value destroying related party transaction.”
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