NUMBER forecast operator (NFO) Pan Malaysian Pools Sdn Bhd (PMP) recently redeemed some RM200 million worth of preference shares.

Genting Malaysia Bhd, the largest stakeholder in the NFO, received RM100 million in the second quarter, as indicated in its cash flow statement as at June 30.

“It is not just Genting … PMP redeemed the preference shares of all its shareholders, including the listed group,” a source familiar with the NFO says, adding that the redemption will not result in changes in its shareholding.

Genting Malaysia’s cash flow for the six months ended June 30 shows that the casino operator had an inflow of RM100 million in proceeds from the redemption of unquoted preference shares in a “Malaysia corporation”. It did not disclose any detail on the said corporation.

The company did not respond to questions sent by The Edge on this.

Genting Malaysia had an investment of RM250 million in unquoted preference shares in a Malaysian corporation sitting in its long-term receivables as at Dec 31 last year, according to its annual report. The preference shares carry a cumulative, non-compounding fixed dividend of 4% per annum and are subordinated to loan facilities undertaken by the issuer.

Gaming analysts say the redemption of the preference shares means that PMP will no longer have to pay the annual dividend moving forward.

“This is an early redemption and will free up PMP’s cash flow in a way … You see, the dividend for preference shares is fixed whereas dividend for ordinary shares is not fixed in this case,” says a gaming analyst with a local bank.

Interestingly, it is not well known in the investing fraternity that Genting Malaysia — instead of the Lim family in its private capacity — holds a substantial stake in PMP.

“The majority of industry observers, myself included, thought that the private side of Genting invested in PMP and not any of the listed entities,” says a gaming analyst with a foreign research house.

Checks by The Edge reveal that Genting Malaysia’s wholly-owned subsidiary, Genting CSR Sdn Bhd, has a substantial stake in Jana Pendidikan Malaysia Sdn Bhd, which owns PMP.

Data from the Companies Commission of Malaysia reveal that Genting CSR has 1,501 shares or a 50% stake in Jana Pendidikan. Its other shareholders include Hong Leong Bank Bhd with a 9.9% stake, Tan Sri Chua Ma Yu with 5.9% and Tan Sri Gnanalingam with 1.9%.

For the financial year ended Dec 31, 2015, Jana Pendidikan registered a net profit of RM28.8 million on revenue of RM1.75 billion.

The company was set up in 2011. A group of local business tycoons emerged victorious in August that year in acquiring the prized PMP from Ananda Krishnan’s Tanjong PLC for RM2.1 billion, and they pledged to use the company’s profits for charitable purposes in education.

They set up The Community Chest, also in 2011, for that reason. It is an independent, not-for-profit, non-governmental charitable organisation that is funded primarily by the profits of PMP and the returns from its investments. The amount pledged has been reported to hit as high as RM100 million a year but it is unclear how much has been donated to date.

Like bees to honey, a steady line of potential suitors formed after Tanjong announced its privatisation exercise in 2010. This comes as no surprise as the gaming business is a very attractive one with a steady stream of cash flow.

It is known that cash from Tanjong’s NFO division was used to pay almost 75% to 85% of its dividends every year, prior to the divestment. Between the financial years of 2006 and 2010, the company paid out a net dividend per share of 51.5 sen to 75 sen. Its dividend payout ratio for that period ranged from 59.6% to 78.3%.

Over at Genting Malaysia, its share price hit an all-time high recently. It touched a historical closing high of RM4.91 last Thursday, 13.4% higher than its one-year average price of RM4.33. It then eased to close at RM4.79 last Friday.

Analysts say the recent spike in its share price could be fuelled by expectations that amenities at Phase 1 of the Genting Integrated Tourism Plan (GITP) are set to open progressively over a one-year period starting from the end of this year.

“Specifically, there will be a partial opening of both the new gaming area and retail area (Sky Avenue Mall) as well as new cable car operations by year-end,” UOB Kay Hian Research says in an Oct 13 note.

“GITP is expected to attract crowds to Genting Highlands, particularly family-oriented visitors. This would be a booster for the mass market segment, which recorded a mid-single-digit y-o-y gross gaming revenue drop in 1H2016. Genting is targeting Genting Highlands to attract 30 million visitors annually by 2020, versus 19.4 million visitors in 2015,” it adds.

Genting Malaysia is also in the midst of disposing of its entire 16.9% stake in Genting Hong Kong for US$415 million cash.

Analysts do not expect its management to distribute a special dividend from the stake sale.

In an announcement to Bursa Malaysia on Sept 30, Genting Malaysia says it has yet to identify any specific investment for the funds.

As at June 30, the company’s foreign currency denominated short-term borrowings stood at RM747.1 million and long-term borrowings at RM1.4 billion. It also had long-term local borrowings of RM2.4 billion.

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