Genting International- Some Updates

The recent news on Las Vegas Sands in financial trouble rattled many investors in general (details here), which include shareholders of Genting International. As you probably aware both Las Vegas Sands and Genting International were contracted to built and operate the only two intergrated resorts and casinos in Singapore. Any negative news from each party or the industry itself will surely create a panic. The worries were made worse when Moody's Investors Service has yesterday given a negative rating outlook for the gaming sector in Asia-Pacific over the next 12 to 18 months and this includes casinos and resorts in Australia, Malaysia and Macau. Basically, Moody's reported the gaming industry is facing increasing operating pressures due to slowing macro-economics, causing cutbacks in discretionary spending , regulatory changes affecting visitations and intense local competition. While Las Vegas Sands may be in a worse footing than Genting International, I do not think Singapore will allow the proposed casinos to fail and every effort will be provided to make sure the casinos will be built on time and a success in 2009(Las Vegas Sands) and 2010(Genting International). Below is a timely report by AmResearch which provide some simple comparisons between Las Vegas Sands and Genting international.

Las Vegas Sands Corporation (LVS) may default on debt and face bankruptcy, according to a Bloomberg report today. LVS, which had US$8.8bil in long-term debt as at end-June said in a regulatory filing that it probably will not be able to meet the requirements of loans arranged by financial institutions like Citigroup Inc and Goldman Sachs Group.LVS also said that should it fail to raise capital, then the group would need to immediately suspend portions, if not all, of its ongoing global development projects and consider other alternatives. This is in spite of the fact that just at the end of last month, LVS had said that the development of the Marina Bay Sands integrated resort cum casino (IR) project remains on track. Also, the Singapore Tourism Board had said last month that it was monitoring the situation and was holding talks with LVS.

We believe that Genting International Ltd (GIL) would not face the same financial predicament as LVS. The reason why LVS is being financially stretched is because of its huge regional expansion. LVS is not only developing casinos in the United States, it is also operating in Macau while in the middle of the Marina Bay Sands IR construction project in Singapore. In comparison, GIL faces construction risk only in Singapore. GIL’s casinos in Britain are already well in place. In fact, the group closed two of these casinos in 1HFY08 as part of a rationalisation and streamlining exercise. GIL had said many times that the “Resorts World at Sentosa” IR project would be completed within the budgeted cost of S$6bil and targeted completion timeline of 1Q2010. As at end-June 2008, GIL was in a net cash position of S$136.9mil. However, after taking into account the S$4.2bil borrowings for the IR project, we estimate GIL’s net borrowings at S$4.06bil. This translates into a net gearing position of 1.2x. In contrast, LVS’s net gearing was 3.5x as at end-June 2008. LVS recorded a net loss of US$8.8mil in 1HFY08.

We believe that the negative developments on the global casino front would affect Genting Bhd and GIL’s share prices. Hence, we maintain our HOLD recommendation on Genting Bhd. But, we recommend a BUY on Resorts World Bhd for its safe and recurring cash flows from domestic casino operations and healthy cash reserves of US$1.2bil.

For more information of GIL, a 54.4% owned subsidiary of Genting Bhd, details here.(Highlight Gent Int)

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