KUALA LUMPUR (Oct 12): Genting Bhd (KL:GENTING) fell to its lowest in nearly two decades after the gaming conglomerate announced a RM1.25 billion cash call to pare down borrowings.
Analysts, meanwhile, see sharp dilution to earnings and dividend on a per share basis from the company's first-ever proposed rights issue. Maybank Investment Bank downgraded Genting to the non-consensus ‘sell’ call while CIMB Securities warned of selling pressures ahead for the stock.
“Nobody likes a rights issue,” CIMB Securities said. “While a rights issue does not mathematically destroy shareholders wealth, investors usually view such exercises negatively as it replaces cheaper debt with more expensive equity.”
Shares of Genting fell 43 sen or 23% to close at RM1.45 on Monday, its lowest since April 2007, as over 90 million shares exchanged hands. The sharp fall wiped over RM2 billion from its market capitalisation to a little under RM7 billion at the end of the day.
Selling pressure also spilled over to its listed subsidiary Genting Malaysia Bhd (KL:GENM), which fell 26 sen or 17% to close at RM1.23 as more than 30 million shares traded.
The drop triggered an automatic suspension of intraday short selling in Genting and Genting Malaysia shares on Monday, which kicks in when a stock falls more than 15% or 15 sen from its reference price.
Sensible way
However, the rights issue may be a cheaper way for Genting to raise capital as well as to fund operational expenditure given its heavy capital commitment particularly for Resorts World New York in the US and Resorts World Sentosa in Singapore, said Public Investment Bank.
The house, which cut its target price by 35 sen to RM2.00, noted that credit downgrades by rating agencies had increased its funding costs, making the cash call “a more sensible way” to raise funds.
In September, Fitch Ratings downgraded Genting to BBB-, right at the bottom of investment grades, following and earlier cuts by Moody’s Ratings and S&P Global Ratings.
Genting had total borrowings of RM45.25 billion against cash and cash equivalents of RM17.64 billion. Short-term borrowings, obligations that must be repaid within 12 months, more than doubled to RM9.68 billion from the end-2025, according to its latest financial statements.
For Maybank Investment Bank, further fundraising efforts that may lead to more dilutions, including private placements, could not be ruled out even as its analysis reveals “minimal" interest savings and two percentage-points decline in net gearing for Genting.
The house also flagged potentially lower dividends ahead as Genting rebuilds its cash balance.
Genting now has four ‘buy’, seven ‘hold’, and the sole ‘sell’ ratings from Maybank Investment. The average 12-month target price is RM2.38, based on the 12 analysts tracked by Bloomberg.