Vol. 7 • No. 20 • June 1, 2009 - Print This Issue
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Vol. 7 • No. 20 • June 1, 2009, Cover Stories
Genting Shows Interest In MGM Grand Macau
In wake of a New Jersey report calling MGM Mirage partner Pansy Ho “unsuitable,” Malaysian-based Genting buys $100 million in MGM bonds and is showing interest in buying the MGM Grand Macau (l.).
Resorts World Bhd, a subsidiary of Malaysian gaming giant Genting Bhd, last week purchased $100 million in MGM Mirage bonds in a flurry of activity suggesting the company is interested in buying MGM’s stake in the MGM Grand Macau.
The potential of a sale of the interest started two weeks ago when the New Jersey Division of Gaming Enforcement ruled that Pansy Ho was “unsuitable” as a partner to MGM Mirage in Macau. MGM Mirage received approval from four other states where the company is licensed—Nevada, Mississippi, Illinois and XXXX—but the New Jersey agency objected to Ho’s connections to her father, Stanley Ho, the longtime gambling boss of Macau.
While the DGE report is damning, the conclusions of the report can only be implemented by the state Casino Control Commission, which will hold a hearing on the report sometime in the near future, but no date has yet been announced.
In addition to the purchase of the $100 million in MGM debt, which was produced recently by the restructuring of MGM finances, the Lim family, which controls Genting, sold 9 percent of its shares in Genting's Singapore subsidiary, Genting Singapore. Resorts World Bhd is constructing a $3 billion integrated on the city-state’s Sentosa Island, due to open in 2010. The sale netted the family more than $400 million, which some analysts say could be used to buy the MGM interested in the Macau property.
Should the New Jersey commission uphold the DGE report, MGM would be required to either sell its interest in Macau or sell its interest in the Borgata in Atlantic City, which was developed jointly with Boyd Gaming, the casino’s operator, and relinquish its New Jersey casino license.
Because of its commitment to the Singapore development, the government may refuse to allow Genting to invest in Macau, which is considered the chief competitor to the two Singapore casinos (although the first Singaporean casino to open later this year, Sands Marina Bay, is owned by Las Vegas Sands, which owns two Macau casinos). The Lim family may be the MGM Grand Macau investor rather than either Genting or Resorts World.
Genting issued a comment to a Malaysian newspaper. “The notes represent a good opportunity for Genting to expand its investment portfolio and enhance returns on its existing cash balances With yield returns in excess of 10 percent, the investment generates an attractive return compared to what is currently attainable in the money markets or in other secured investments regionally especially within the Genting group's core leisure and hospitality industry.
"Further, the notes will be secured against high quality gaming and entertainment assets in Las Vegas, thereby giving downside risk protection to the investment," Genting said.
Meanwhile, Pansy Ho said it was MGM Mirage’s responsibility to respond to the DGE report. She said it was MGM’s licenses that are at stake so it’s up to the company to respond. But she said she reserves the right to take some legal action, following MGM’s response.
“For the time being, there's nothing I can do, because it is certainly not a procedure involving myself,” she said. “Only when MGM Mirage has made their decision, then will I know the implication on our project.”
MGM Mirage says it plans to answer the allegations in the report.
“While we disagree with the recommendation of the report, we look forward to presenting our position at the hearing," MGM spokesman Gordon Absher said.
Analysts were quick to point out that Genting’s MGM investment could be the precursor to other purchases.
“If complications in the MGM-Pansy Ho JV led to the departure of either party, Genting group’s subscription to the bonds would not hurt its chances of potentially filling the void. We continue to believe that an eventual presence in Asia’s gaming hub of Macau would strengthen the group’s position as a formidable regional gaming player,” said CIMB Investment Bank in a note to investors.
Kenanga Investment Bank suggested that MGM may be forced divest its stake in MGM Grand Macau under regulatory pressure. “Should MGM Grand Macau be up for sale as we postulated, it could offer Genting an excellent opportunity to immediately access the Macau gaming market without going through the lengthy asset building process,” the bank noted. “The acquisition of MGM Grand Macau, if it materializes, could be a huge re-rating catalyst for both Genting and Resorts.”
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