Inside Asian Gaming

INSIDE ASIAN GAMING | September 2010 12 2 (1) Lim Kok Thay Chairman and CEO Genting Berhad Genting’s Lim Kok Thay has presided over a momentous year in the history of the company. The Malaysia-based conglomerate that has interests covering most major sectors, including palm oil plantations and power generation as well as casino gaming, opened the first integrated gaming resort in neighbouring Singapore on St Valentine’s Day. Of greater significance is the fact the date coincided with Chinese New Year. In its second quarter results—the first full quarter since the US$4.4 billion Resorts World Sentosa (RWS) opened—the casino’s operational unit, Genting Singapore (GENS), reported gross revenue of S$979.3 million. the subsequent botched rescue operation that led to eight of them being killed in the gun battle can hardly have done much to improve the prospects of Resorts World Manila attracting more Chinese visitors. As a sign of Genting’s sensitivity to the need to maintain positive sentiment on the equity markets, in late August Genting Malaysia announced it had bought back a total of 11.2 million shares at an average price of RM3.03. This brings its cumulative treasury shares held at 3.71%. The group has also announced its intention to purchase up to a further 376 million shares (representing 6.4% of share capitalisation) within the next 10 months. For all the above reasons Mr Lim loses his top spot on this year’s Asian Gaming 50 list. On the upside, however, in the last 12 months Genting underwent a structural reorganisation that should help to create more transparency for shareholders and analysts seeking to assess the prospects of this sprawling business empire and, if necessary, separate the gaming components from the non-gaming ones. The reorganisation involved the creation of specific jurisdictional units to run its gaming operations in different countries. Genting Singapore (GENS) is the local unit running RWS. Genting Malaysia does the job for Genting Highlands and Genting Hong Kong is the new name for the former Star Cruises, the company that operates casino cruise ships out of Hong Kong and has invested as a joint venture partner in Resorts World Manila, a casino and hotel complex next door to Manila International Airport. There is also talk of Genting Singapore launching a new share issue to complement the initial public offering on the Singapore bourse in September last year. That raised S$1.63 billion (US$1.14 billion).The reports of a new share offer should be taken seriously, given that they emanated from CIMB Singapore, a company that acted as joint financial adviser and joint lead managers for GENS’ first rights issue. That’s equivalent to daily gross revenues of S$10.8 million (US$8.1 million) per day. Even discounting the earnings of GENS’ UK casinos from the balance sheet, it means RWS generated considerably more than the US$5.3 million gross per day recorded in the stub first quarter. Revenue from the S$527.1 million sale of the UK casinos to Genting Malaysia will appear in the second half results. Reuters said in late August the sale provoked a ‘shareholder revolt’ at the latter company, with 38% of shareholders voting against it—though the deal was eventually endorsed. Such an open display of shareholder disapproval was a very rare event in the history of Malaysian public companies, added Reuters . Questions have also been raised about the prospects for RWS’s medium to long term profitability, given that it seems to be operatingonslimmarginsintheVIPsegment, with reports of rebated commissions on rolling chips paid to VIP players going as high as 1.7%. Other outstanding issues also serve to put something of a cloud on Genting’s horizon. Universal Studios Singapore, the theme park that was supposed to cement the mass tourism appeal of RWS, is not yet fully operational. There are political concerns about the long term viability of Genting Malaysia’s gaming licence in Genting Highlands if Islamists unsympathetic to the casino industry gain more say and more visibility in the Malaysian governmental system. Genting Highlands has been on a rolling three-month licence ever since it opened back in the 1960s. Genting’s investment at Resorts World Manila in the Philippines is also under some scrutiny following the election of a new government in that country. The incoming administration is at best lukewarm about the existence of casino gaming in the country and has placed a moratorium on further expansion of land based operations within the country. The recent hijacking in Manila of a tour bus full of Hong Kong tourists and Asian Gaming 50 – 2010 to 30th June. Net revenues for the period were US$216.4 million. Given that during this period the shopping mall and the hotel were not fully open, Mr Adelson’s assertion that MBS can generate US$1 billion in annual EBITDAR looks achievable. LVS’s earnings from Asia enabled it to announce, in late August, plans to pay down US$1 billion of its global debt. In less than 24months, LVS has gone from corporate basket case facing a real threat of extinction to cash machine. Mr Adelson would probably contend that the downside on his business was always overstated, given the powerful economic growth of China and the region. The fact that LVS is the only casino operator to have successful resorts in both of Asia’s key markets—Macau and Singapore—is the decisive factor in Mr Adelson making top spot in the Asian Gaming 50 list for 2010.