This article first appeared in The Edge Malaysia Weekly on May 12, 2025 - May 18, 2025

GOOD things come to those who wait. Will this eventually be the case for Genting Malaysia Bhd’s (KL:GENM) investment in Empire Resorts Inc, a New York-based casino operator that was on the brink of filing for bankruptcy in 2019?

Empire Resorts is still bleeding red ink, six years after Genting Malaysia bought a 49% stake in it. Investment analysts do not expect the US casino operator to turn around soon, let alone contribute to the latter’s bottom line. 

But the Genting Malaysia board remains optimistic about its prospects while its major shareholder, the Lim family, would not mind parting with it.  

About two weeks ago, Genting Malaysia announced that it had entered into an agreement with the Lim family’s investment vehicle, Kien Huat Realty III Ltd, to buy the remaining 51% interest in Genting Empire Resorts LLC, which wholly owns Empire Resorts. In addition, it said in the filing with Bursa Malaysia that Kien Huat would assign a US$39.7 million inter-company loan that Empire Resorts owes it, to Genting Malaysia. 

The related-party transaction (RPT) this time round is costing Genting Malaysia US$41 million (RM176.2 million), including the inter-company loan. The board does not need to seek shareholder approval for the acquisition as the price tag does not hit the threshold that requires it to do so. 

It is apparent that the board has approved the acquisition, just like when the group bought the 49% stake in 2019. 

Genting Malaysia’s board members include Tan Sri Mohd Zahidi Zainuddin (chairman),Tan Sri Lim Kok Thay (deputy chairman and chief executive), Datuk Seri Lee Choong Yan (president) and Datuk Indera Lim Keong Hui (deputy CEO).  

The group’s independent and non-executive directors are Chong Kwai Ying, Ho Heng Chuan and Norazilla Md Tahir. Its non-independent non-executive directors are Teo Eng Siong and Quah Chek Tin.

Some in the investing fraternity say the deal raises questions on transparency, corporate governance and minority shareholders’ rights.

Investment analysts do not see the merits of the deal either, even though some of them have Genting Malaysia on their “buy” lists. 

“After more than five years, the group has failed to turn around Empire [Resorts] and we view this RPT negatively as it is likely to drag the group [Genting Malaysia] further with a higher share of losses,” Public Investment Bank said in the research note after the announcement. 

Public IB has a “trading sell” on the company. It cuts earnings forecasts for the financial year ending Dec 31, 2025 (FY2025) to FY2027 by 10%-16% to reflect the recognition of higher losses from Empire Resorts and weaker consumer sentiment in the US amid the escalation of the trade war.

Meanwhile, CIMB Securities analyst Foong Choong Chen writes in his research note that the deal is “not entirely a surprise”, but is viewed negatively. He says taking full ownership of Empire Resorts will dilute Genting Malaysia’s core earnings by 3% to 4% in FY2025-FY2027 and raise its net debts by RM1.28 billion. 

“Genting Malaysia is investing more money into a company that we do not foresee turning profitable and whose prospects may get dimmer once three casinos in Downstate New York are permitted to offer live table games following the issuance of full casino licences,” adds Foong. 

He maintains his “buy” call on the stock, noting that the outcome of the full casino licence tender in Downstate New York, in which the group has participated, could be a catalyst. 

Maybank Investment Bank (Maybank IB) analyst Yin Shao Yang, too, does not view the proposal positively and hopes that this will be the last “value-destroying RPT” at Genting Malaysia. 

He says the company will consolidate Empire Resorts’ US$300 million senior secured notes in its balance sheet. As a result, its net gearing will rise to 98% by end-2025 from 79% now. 

A check on AskEdge shows that Genting Malaysia’s net gearing ratio has been growing over the past five years, from 0.5 times at end-2020 to 0.8 times at end-2024. 

Net borrowings have more than doubled in five years to RM8.6 billion at end-2024 from RM3.52 billion at end-2019. It should be noted that the pandemic, which brought all entertainment activities to a standstill, badly strained Genting Malaysia’s financial health. 

The timing for Genting Malaysia to come in as a substantial shareholder of Empire Resorts was just right for the latter as well as the Lim family, which owned a 84% stake then. But it was certainly not the case for Genting Malaysia. 

The acquisition was completed in November 2019, a few months prior to the onset of the Covid-19 pandemic, which hit Genting Malaysia hard as it had never before had to close all its 24-hour casinos at the same time.

The company entered rough waters in 2020 with an additional burden — it had to pump in new capital via the subscription of preference stocks to recapitalise and sustain Empire Resorts’ operations.

To date, Genting Malaysia has invested some US$765 million, or RM1.91 billion (based on the current exchange rate of RM4.28), in Empire Resorts — more than 10% of its shareholder equity of RM11 billion. 

Of the total sum invested, roughly US$300.7 million was paid to Kien Huat for the equity stake acquisition and the purchase of 1,510 Series F Convertible Preferred Stock of Empire Resorts worth US$100 million. This means the total price of the RPT is actually US$300.7 million. 

Investment analysts expect Empire Resorts to be loss-making for the next three years at least. It incurred net losses of US$53.1 million in FY2024 and US$57 million in FY2023. 

Given the potential losses, it is highly likely that Genting Malaysia will still need to inject more capital to keep Empire Resorts afloat.

It is worth noting that in 2018,Genting Malaysia impaired RM1.83 billion for its investment in the promissory notes issued by Mashpee Wampanoag Tribe to finance the pre-development expenses of a destination resort casino in Taunton, Massachusetts, which borders New York state. The notes carry fixed annual interest rates of 12% and 18%.

According to the group’s 2018 annual report, in September 2018, the US federal government issued a decision concluding that the Tribe did not satisfy the conditions under the Indian Reorganisation Act that allow the Tribe to have the land in trust for an integrated gaming resort development.

In view of the uncertainty over the recovery of the notes given the US government’s decision, Genting Malaysia booked an impairment loss of RM1.83 billion (including accrued interest) in relation to the investment in FY2018. 

The large impairment dragged Genting Malaysia into a net loss of RM86.3 million in FY2018 despite a higher revenue of RM9.92 billion, compared to a net profit of RM1.07 billion the year before. 

The group made a net profit of RM1.33 billion in FY2019 before it slipped into losses in the following three years. It returned to the black in FY2023 with a net profit of RM436.8 million and RM251.2 million in FY2024, AskEdge data shows. 

Despite the tough operating landscape during the Covid-19 pandemic, Genting Malaysia did not stop declaring dividends. It declared 14.5 sen for FY2020, nine sen in FY2021 and 15 sen in FY2022 while it was in the red. Over the past two years, the group paid out more than it earned, with a dividend payout ratio of 195% in FY2023 and 225% in FY2024. 

“FY25-27F dividend yields are also decent at 5.7%-6.9%, based on sustainable payout ratios of 89%-94%,” says CIMB Securities’ Foong. 

The decent dividend yield is partly due to the sharp fall in Genting Malaysia’s share price. The  share price plunged 39% between February and April as market sentiment turned cautious due to escalating trade tensions. It fell to a near 24-year low of RM1.48 in early April. The stock closed at RM1.76 last Friday, valuing it at RM9.97 billion.

Will decent dividend yields outweigh the concerns over corporate governance? Time alone will tell.  

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