GENM (4715) GENTING MALAYSIA : RPT Gone Bad!
After the market close on 7 August, GenM announced that it would acquire a 46%-stake in Nasdaq-listed Empire Resorts Inc from its major shareholder at USD128.6 million (or at a price of USD9.74 apiece) (here).
On 8 August, GenM share price dropped sharply due to concern about this related party transaction. On 9 August, investors began buying into the stock on the hope that GenM would recover after a few quarters down the road.
Yesterday, Empire Resorts share price plunged 12% to close at USD8.18 on news that the company has highlighted to its shareholders that it is contemplating the option of filing for voluntary bankruptcy during the announcement of its result to enable it to easier restructure its borrowings (here).
To be fair, bankruptcy filings may be a tactical move which savvy investors and companies would employ in order to regulate their affair. However, normal investors are put off by this move which suggests the company's financial condition is quite bad. Even for a well-read person like myself, the move by the major shareholder to tap his listed vehicle for fund to finance its loss-making company in New York is not appropriate. What makes this transaction even worse are:
1. the announcement was not made with full candor regarding the state of financial condition of Empire Resorts;
2. the shareholders do not have an option to vote on the acquisition as the purchase consideration is below the 5% asset value threshold; and
3. the purchase price is now higher than the current market price.
As this seemingly unfair transaction will likely affect market perception about the Genting group, I expect the share prices of the group's listed vehicles will trade at a discount for a while until investors have forgotten about their bad experience. For now, I think it is best to avoid this group unless the share prices have dropped significantly enough as to warrant a trading BUY.
Chart 1: Genm's monthly chart as at Aug 13, 2018_12.30 (Source: Malaysiastock.com)
Chart 2: Genting's monthly chart as at Aug 13, 2018_12.30 (Source: Malaysiastock.com)