Genting Singapore Could Opt for Partial Sale Due to Bond Issues, Says Bank

News that MGM Resorts International (NYSE:MGM) may have held talks with the Lim family about acquiring Genting Singapore is the gaming industry’s epic rumor of the week, but some analysts say the Resorts World Sentosa shouldn’t sell itself outright.

Resorts World Sentosa. Analysts say Genting Singapore should sell a stake, not the whole company. (Image: Inside Asian Gaming)

The Lims, which control the vast Genting Berhad empire, own 53% of Genting Singapore. Shares of the casino operator spiked 9% Friday when reports regarding the MGM talks hit the wires, but the Asian gaming company later requested that the Singapore Stock Exchange halt trading in the shares.

In a note to clients, JPMorgan analysts imply there’s credibility to the rumors. A Bloomberg article, which was the first on the matter, cites unidentified sources saying MGM discussed an acquisition with the Lims, but the talks didn’t produce a deal. Likewise, other unspecified suitors are said to be mulling offers for Genting Singapore.

While the operator of one of Singapore’s two integrated resorts undoubtedly makes for an attractive takeover target, particularly for a gaming company looking to enter or expand in Asia, the JPMorgan analysts believe the sale of a partial stake is more likely than a full takeover of Genting Singapore.

Hurdles to Full Sale, Genting Could Target Macau

There are some potential roadblocks that could hinder an outright sale of Genting and those issues center around corporate debt.

Genting Singapore is the vehicle through which parent conglomerate services some of its obligations. Under the terms of one of its issues, the Singapore gaming outfit must remain in control of Genting. Another tranche of bonds previously sold by Genting is tied to Resorts World Las Vegas and carries a clause that if Genting Singapore is acquired by another company, the debt tied to the Strip casino can be redeemed prior to maturity.

If the Lims pursue a partial sale of Genting Singapore, the parent company could bolster liquidity with which to service debt and potentially make a long-awaited entry into Macau.

This also offers GENT a potential entry into Macau, the missing puzzle in the group,” according to the JPMorgan analysts. “Genting Group considered SJM nearly a decade ago, but the idea did not go beyond the CRA.”

Under the terms of Macau’s new gaming laws, the amount of concessionaires operating there remains at the current tally of six, meaning operators wanting to enter that jurisdiction need to do so via acquisition. It’s not confirmed that Genting will make another run at SJM Holdings, but the Grand Lisboa owner is widely viewed as in the worst financial shape of the six concessionaires.

Why Stake Sale Makes Sense

If it’s capital Genting is searching for, selling a percentage of its Singapore arm may make more sense than divesting the entire unit.

The reasoning is simple. Resorts World Sentosa is one of just two casinos there and the city-state is more open than other countries in Asia, indicating that a sale of Genting Singapore over the near-term could prove hasty and limit the operator’s ability to participate in a rebound.

There’s already talk in the gaming community demand is bouncing back in Singapore, indicating Genting may not want to rush to completely divest its operation there.

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