Resorts’s sale of GIL shares to free up excess capital, resources

KUALA LUMPUR: Resorts World Bhd’s proposed non-renounceable offer for sale of its entire 6.16% stake or 593.7 million shares in Genting International Plc (GIL) to its shareholders will help free up excess capital and resources, which in turn allows it to better manage and plan its own direct merger and acquisition activities.

“The Genting group’s complicated cross shareholding structure with Resorts World and Genting both owning stakes in Genting International may have clouded investor’s perception of Resorts World’s exact role in GIL,” said OSK Investment Research.

The research house has maintained its “buy” recommendation on Resorts World at RM3.65 and its target price was RM5.35., and said the disposal would augur well for its long-term development and growth strategy.

The GIL shares will be offered based on a pro-rata basis of one share for every 10 Resorts World shares.

“The proposed offer for sale is not surprising as Resorts World’s 6.2% stake in Genting International is insufficient to create any meaningful shareholder’s value accretion. Based on Resorts World existing stake, it only allows shareholders to enjoy Genting International’s future earnings prospects via dividends, which we believe will be relatively immaterial compared to Resorts World’s core operating cash flow in excess of RM1 billion per annum,” it said in a report.
The research house estimated Resorts World’s share of GIL’s future net dividend payment post-earnings contribution from Sentosa could amount to less than RM15 million per annum, equivalent to an estimated 2.8% return per annum on Resorts World’s average investment cost in GIL of RM523.9 million.

“The proposed offer for sale will consequently allow shareholders to gain more meaningful direct ownership of GIL at a highly attractive entry cost (44% discount to GIL’s current market price).

Additionally, the tentative offer price of S$0.38 (87 sen) per share values GIL at an undemanding 7.9 times prospective earnings post earnings contribution from Resorts World at Sentosa,” said the research house.

According to OSK, the disposal was expected to generate RM526.9 million.

“We believe Resorts World is in an excellent position to reward shareholders by returning any excess capital via the distribution of special dividends. Even if no special dividend is declared, we believe Resorts World will generate a stronger return by investing the proceeds via its own direct M&A activities or existing domestic operations,” it said.

It added that the disposal was unlikely to have any material impact on Resorts World’s earnings, apart from potential forex gain or loss, as the offer for sale was based on investment cost hence no material net gain or loss from disposal, and Resorts World does not equity account GIL’s earnings.