UOB Kay Hian Malaysia Research house said GENHK’s results briefing provides reasonably good assurances that it can raise sufficient capital from the investment community.
KUALA LUMPUR: Financially ailing Genting Hong Kong (GENHK) should be able to raise enough funds from the investment community, ruling out any need for other entities in the Genting group to bail it out, according to UOB Kay Hian Malaysia Research.
In its report issued on Wednesday, the research house said GENHK’s results briefing provides reasonably good assurances that it can raise sufficient capital from the investment community.
UOBK said the briefing had dismissed investor misgivings that other listed entities in the Genting group may need to bail out GENHK.
“Re-rating catalysts abound for Genting and Genting Malaysia, eg GENHK achieving various capital-raising milestones and a Covid-19 vaccine discovery. Maintain market weight on the sector with Genting promising the sharpest near-term rebound, ” it said.
UOBK said Genting Bhd and GentingM share prices have fallen 8.7% and 2.2% respectively since Aug 20 when GENHK temporarily suspended all payments to the group’s creditors, thus triggering concerns of GENHK’s solvency and investor misgivings of GENHK’s sister listed companies of needing to directly or indirectly bailing out the Lim Family.
“Such misgivings have been directed at the Malaysia listcos (in contrast, Genting Singapore (GENS) share price has eased only 0.7% over the same period), particularly GentingM which had bought a 49% stake in US casino operator Empire Resorts from the Lim family.
“The larger fall in Genting’s share price may be reflecting investor concerns of margin calls to the Lim family which has increased its share margin pledge (to about 32% of the controlling block in 2019 from less than 10% in 2018, ” it said.
UOBKH said such investor misgivings on bailouts and margin calls are unsubstantiated.
GentingM’s stake acquisition of Empire Resorts was a relatively smaller bet on an entity which was making a turnaround (until Covid-19 hit).
However, it said GENHK should be able to secure fresh capital from private equity investors, including pension funds, with its appeal of having a unique presence in the Asian cruise business, including its ownership of luxury cruise liner Crystal Cruise.
It added GENHK’s German shipyard should be able to secure funding from Germany’s Covid-19 relief fund (Economic Stabilisation Funds).
UOBKH said noted GENHK bankers’ agreement to a 12-month moratorium on principal debt repayment.
“The asset values of GENHK’s cruise ships and PPE (US$5.8b) are significantly more than gross debt of US$3.2bil, ” it said.
The research house also said GENHK management is confident of securing sufficient capital to fulfill its US$200.4mil financial obligations scheduled to be repayable within the next 12 months.
This is supported by its existing cash position of US$397.5mil and proposed raising of fresh capital from sovereign funds and private equity firms.
“Coupled with aggressive cost cuts (staff and haircut reduction) and short-term suspension of capex (excluding cruise maintenance), we deem GENHK should be spared from bankruptcy or default of its US$2.9b net debt and have adequate cash flow to maintain its current operating cash outflow (1H20: US$252m), ” it said
UOBKH also said GENHK have resumed one of its cruise lines to Taiwan in July, where occupancy rate has recovered progressively from 50% to about 96% on the August cruises.
“This further reiterates our view that the cruise operation is recovering gradually and has achieved EBITDA breakeven at current occupancy level, given its more efficient cost structure where cost per capacity day has fallen by one-third from July cruises with new staffing and service standards.
“While GENHK’s debt obligations are ring-fenced to only its assets (for example, cruise ships), there shall not be any form of guarantee or collateral from sister listcos in its restructuring or fund raising plans.
“Management has also reaffirmed that there is no plan for Genting, GentingM or GentingS to inject liquidity or bail out GENHK as GENHK can stay afloat by securing funding from and negotiations with external creditors, ” it said.