This article first appeared in The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

THE Genting group seems to have been dealt several bad hands in North America this year.

About three weeks ago, Genting Malaysia Bhd’s (GenM) (KL:GENM) indirect wholly-owned subsidiary Genting Americas Inc, which operates the Resorts World Bimini (RW Bimini) in the Bahamas, was named by its partner RAV Bahamas in a complaint to the US District Court for the Southern District of Florida.

RAV Bahamas alleged that Genting Americas has turned RW Bimini into a “financial wasteland” by dumping almost US$1 billion of debt into it, Bahamas’ news portal The Tribune reported on Oct 9.

RAV Bahamas is seeking damages of more than US$600 million (RM2.57 billion) from Genting Americas. GenM said in a statement to Bursa Malaysia that the claims against Genting Americas by RAV Bahamas were baseless and that it was exploring legal options.

This comes on the heels of a slew of complaints filed by the Nevada Gaming Control Board against Resorts World Las Vegas LLC (RWLV), which include allegations that RWLV had failed to ban criminals from its resort in the gaming capital of the world. RWLV is owned by GenM’s parent Genting Bhd (KL:GENTING).

This raises the question of whether the Genting Group, especially GenM, has spread itself a bit too thin, especially when the overseas expansions have got it into hot water.

“Like other [casino operators], overseas expansion is crucial to diversify country risk,” says Steve Tan Kam Meng, senior analyst at TA Securities Research. This is a view that is shared by many.

GenM has been racking up debts over the last few years, with net debt growing to RM9.61 billion as at June 30 this year. This is in stark contrast to its net cash position prior to financial year FY2017.

While it cannot be said for certain that GenM’s overseas expansion over the last two decades are the reason for its ballooning debts, there is no doubt the group has made a lot of overseas investments.

Eddy Do Wei Qing, senior research analyst at PhillipCapital Malaysia, says revenue growth at GenM’s US operations between 2013 and 2023 outpaced the group’s total revenue growth, showing that the US venture was pushing the group forward.

GenM’s revenue rose at a compound annual growth rate (CAGR) of just 2% between 2013 and 2023, despite the overseas ventures. During the 10-year period, contributions from the US operations to group revenue (in ringgit terms) increased from 11% to 18%. Revenue at the US operations grew at a CAGR of 7%.

The contribution of the US and Bahamas operations to GenM’s earnings before interest, taxes, depreciation and amortisation (Ebitda) also increased from around 8% in 2013 to 18.95% in FY2023. At the end of 1HFY2024, the contribution had inched up to 20.93% of GenM’s Ebitda.

“It’s safe to say that the majority of this uplift came from Resorts World New York City (RWNYC), which runs the first, and one of the largest, racinos in New York State. It commenced operations in 2011 and has consistently been the leading video gaming machine facility in the state.

“In 2023, RWNYC commanded a 43% net win market share among the video gaming machine operators in NYC. Besides that, Genting UK provided steady Ebitda contributions, while Empire Resorts and RW Bimini turned Ebitda positive in recent years,” says Do.

The overseas expansions have diversifie0d GenM’s revenue base. In 2019, 79.72% of its Ebitda was contributed by the Malaysian operations, led by the hilltop casino in Genting Highlands. Although the percentage has fallen, its home operations still contributed to 70% of total revenue in 1HFY2024.

Meanwhile, on its balance sheet, GenM’s total liabilities ballooned to RM19.06 billion at end-June 2024, from RM4.37 billion at end-December 2013, for a CAGR of 14.33% over the 11-year period.

Furthermore, its Ebitda has yet to show impressive growth despite its establishing a foothold in the US and UK.

In FY2010 when the diversification started, GenM’s Ebitda was RM2.02 billion. In FY2023, it stood at RM2.63 billion. This means that over a 13-year period, GenM’s Ebitda grew by a CAGR of just 2.06%.

Growth of the Malaysian operations’ Ebitda has been anaemic over the last 13 years. In FY2023, the Malaysian operations registered an Ebitda of RM2.06 billion, just 4% higher than in FY2010.

At the same time, the Ebitda of its overseas business grew by leaps and bounds, from just RM18.3 million in FY2010 to RM841.6 million in FY2023. This shows that overseas ventures drove GenM’s Ebitda growth over the last 13 years.

However, it is not known what the breakdown in profitability for each geographic area is.

Besides expanding its gaming operations, GenM is also involved in real estate. In May 2011, it acquired 13.9 acres of land with a seven-storey office and warehouse/manufacturing building belonging to the Miami Herald for US$246 million, or approximately RM776 million then.

In the same year, it acquired the Omni Centre in Miami, Florida, through a foreclosure bidding process for RM585.8 million.

In 2012, GenM executive chairman Tan Sri Lim Kok Thay envisioned a contiguous 30-acre prime waterfront site overlooking the Biscayne Bay in the heart of Miami.

“We are currently developing plans for a mixed-use development, which includes hotel, residential, commercial with retail offerings.

“The development will occupy the five-acre site currently occupied by the Miami Herald building, inclusive of an 800-foot waterfront promenade along Biscayne Bay,” Lim said in GenM’s 2011 annual report.

However, Lim’s Miami dream has not been realised.

In April 2023, GenM announced that it was selling some portions of its land in Miami to Smart Miami City LLC, for US$1.225 billion cash.

Two months later, it said the agreement with Smart Miami had lapsed, and that Smart Miami’s request for an extension of the exclusivity period and amendments to the commercial terms of the agreement was not granted.

Observers note that the proceeds from the disposal of the Miami land, had it gone through, would have been used to finance GenM’s bid for a full casino licence in New York, after it missed the earlier round of bidding in 2014.

RWNYC, which had been in operation since 2011, is only allowed to operate slot machines. Therefore, when the New York State Gaming Commission opened four full casino licences in the state for bidding, GenM paid up.

It was not, however, awarded the licence. Instead, Montreign Resort Casino, owned by Empire Resorts Inc, was one of the successful bidders.

Empire was then owned by Kien Huat Realty III Ltd (KHR), a vehicle of the late founder Tan Sri Lim Goh Tong’s family, which is also the largest shareholder of Genting. The Lim family owns 43.71% of Genting, which in turns owns 47.8% of GenM.

In November 2019, the Lim family sold a 49% interest in financially distressed Genting Empire Resorts LLC (GER), the holding company of Empire, to GenM for RM661.1 million (US$159.7 million). The remaining 51% interest is owned by KHR.

Between 2020 and 2024, GenM invested a total of US$724.4 million in Empire through the subscription of preference shares to recapitalise the latter. The latest was a US$100 million Series M announced in January this year.

GenM’s effective economic interest in Empire was raised to 89.6% following the subscription of the Series M preferred shares.

In 2023, GenM’s share of losses in GER increased to RM218.8 million, from RM153.2 million in 2022. However, it appears the losses at Empire are declining.

As at the second quarter ended June 30, 2024, GenM’s share of losses of associates had shrunk slightly to RM63.28 million, from RM72.09 million in the previous corresponding quarter.

Despite having an associate interest in Empire, GenM is still eyeing a full casino licence in NYC. In February, the group said it would invest US$5 billion to expand RWNYC if the New York State Gaming Commission awarded it the licence.

It seems that GenM is still not letting go of its dream to have a full-fledged casino in New York. However, with billions of ringgit already invested in Empire Resorts, will GenM’s shareholders have the stomach to see billions more going into RWNYC? 

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