And Genting Malaysia Rewards Its Shareholders With Yet Another RPT

And so Genting Malaysia announced its 4th RPT last night.

Snippet from CIMB report:

• What We Think
  At first glance, the news of yet another RPT by Genting Malaysia is negative. Although Genting Malaysia expects to reap cost savings from the acquisition as it is E-Genting’s largest customer, the RPT might not sit well with investors. This is the fourth RPT in four years, the others being Walker Digital, Wisma Genting and Genting UK.
  
  However, we take comfort in 1) the size of the acquisition, which is small at 3% of net cash and 0.4% of total shareholders’ funds, 2) fair pricing of 5.2x P/E and 2.0x P/BV for E-Genting, and 3) the profitability of E-Genting’s business. Genting Malaysia also accounts for close to 80% of E-Genting’s revenue. Ascend International only has minimal operations at this juncture.
  
  What You Should Do
  Any share price weakness from this news should be viewed as an opportunity to accumulate the stock. Genting Malaysia’s defensive earnings and strong operating cash flow are appealing in uncertain times like these.

My comments?

It's the 4th RPT lah.

When will Genting Malaysia respect its minority shareholders and stop all these Related Party Transactions (RPT) nonsense?

Is it so difficult to respect?

CIMB said '.. we take comfort in 1) the size of the acquisition, which is small at 3% of net cash '

Gosh! This deal is worth 50 million ringgit. Is 50 million ringgit small? WTH? And how could CIMB insult the intelligence of its readers by comparing it versus the 'net cash'?

50 million ringgit is 50 million ringgit is 50 million ringgit!

And the last part... it's advice "What You Should Do - Any share price weakness from this news should be viewed as an opportunity to accumulate the stock.'

Oh yeah, as usual any share price weakness is an opportunity to accumulate the stock... but just what kind of stock is one accumulating? What kind of company is this? Does the investor looks smart investing in a company who only does nothing but RPTs? Does it make sense?

And if the minority does nothing, such transactions will keep on happening over and over and over again.

Past postings:

• 9 Dec 2009: Genting Malaysia Buys Properties From Genting Bhd
• 16 Dec 2009: MSWG Slams Genting Malaysia For Its RPT Land Deal!
• 2 Jul 2010: Genting Malaysia's UN Fortunate Entry Into UK Casino Business
• 25 Aug 2010: Shame On The 60.39% Who Voted For Genting Malaysia's UK Casino Purchase

Sigh!

Shame On The 60.39% Who Voted For Genting Malaysia's UK Casino Purchase

On Star Biz: Genting M’sia gets nod for UK casino purchase

• Wednesday August 25, 2010
  Genting M’sia gets nod for UK casino purchase
  By FINTAN NG
  
  Shareholders approve the deal after initial misgivings
  
  KUALA LUMPUR: Shareholders of Genting Malaysia Bhd voted yesterday in favour of resolutions to acquire the British casino operations collectively known as Genting UK from Genting Singapore plc despite initial misgivings over the related party transaction nature of the deal.
  
  It is understood that shareholders mainly asked questions on the rationale for the acquisition and on profitability, as Britain is not seen as a growth market due to prevailing economic conditions and tougher operating conditions.
  
  “Shareholders wanted more clarification on the acquisition and whether it’ll be profitable,” a shareholder said, adding that HSBC Nominees and Cartaban Nominees called for a poll before the voting.
  
  The vote was 60.39% or 1.17 billion shares, for the acquisition, which was worth RM1.67bil. Genting Malaysia, the owner and operator of Resorts World Genting, is 47.33% owned by Genting Bhd, which also owns a 52% stake in Genting Singapore.
  
  The over-lapping shareholding among certain institutional shareholders in Genting Malaysia and Genting Singapore could have been a major catalyst in the way the voting turned out as it did. Blackrock Fund Advisors and Vanguard Group Inc were among those with stakes in both companies.
  
  Genting and its chairman cum chief executive officer Tan Sri Lim Kok Thay did not take part in the voting.
  
  An analyst with a foreign investment bank told StarBiz that the voting pattern showed that these shareholders preferred to see the British casino operations, which faced quite a few obstacles including higher taxes and a tougher operating environment, under Genting Malaysia.
  
  Analysts in recent reports said the British casino operations were a better fit for Genting Malaysia rather than for Genting Singapore.
  
  As for Genting Singapore, the analyst said this would look good for the company, which would be able to concentrate on the integrated resort business.
  
  Moreover, the gaming industry in Singapore was recently re-rated with Genting Singapore showing sterling results.
  
  A market observer noted that in a situation where there were overlapping institutional investors and better prospects in Singapore, it was “normal to make Genting Malaysia a sacrificial lamb to help Genting Singapore”.
  
  He added that based on the number of shares, it appeared that these institutional shareholders were quite active in voting.
  
  Meanwhile, Genting Malaysia deputy chairman Tun Mohd Haniff Omar said all proposals to expand the business were looked at based on merits by the company’s board, including those involving related party transactions.
  
  “We’ve this opportunity in Europe (with Genting UK), we hit the ground running with a going concern that is already cash flow positive following the remedial measures taken by Genting Singapore,” he said.

A terribly sad day for corporate Malaysia.

Quote: "Shareholders approve the deal after initial misgivings"

Well, lets be more accurate and state it boldly that 60.39% voted for the deal.

Which means some 39.6% voted against!!!!

Which means some 39.6% understands the utter nonsense in this RELATED PARTY TRANSACTION!

Yeah... Genting Malaysia's UN Fortunate Entry Into UK Casino Business

And this 2nd July 2010 news flash said it all...

• DJ MARKET TALK: Genting Singapore +1.7%; Fortunate UK Exit -Citi
  Dow Jones Newswires 02 Jul 2010 9:50am
  
  0150 GMT [Dow Jones] Genting Singapore (G13.SG) +1.7% at S$1.20 as proposed GBP340 million (S$688.8 million) sale of money-losing U.K. operations to sister company Genting Malaysia (4715.KU) fuels hopes for stronger earnings profile. While Genting Singapore will book FX translation loss of S$338 million this year, bottom-line excluding exceptional item expected to improve. "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa." Still, keeps Sell call, S$0.65 target on valuation grounds. Orderbook quotes suggest minimal upside beyond S$1.23.

Fortunate that the buyer was related to Genting Singapore!

Fortunate that Genting Malaysia is buying a business which operates in a very tough business environment!

Good to be related, eh?

Good that the deal is voted through, eh?

ps: For the BRAVE 39.6%, you can still VOTE with your feet!

Nomura Securities Declares That The Worst Is Over For Genting Malaysia

I was reading the following article posted on the Edge.

• Worst over for Genting Malaysia?
  Written by Nomura Securities Research
  Thursday, 15 July 2010 14:34
  
  KUALA LUMPUR: Nomura Securities Research Malaysia says the worst is over for Genting Malaysia (GentingM) after the recent sell down and downgrades by the market.
  
  "We believe that all the bad news has been priced in. Fundamentally, we see earnings upgrades as the key catalyst going forward," it said on Thursday, July 15.
  
  Trading at 4x FY11F EV/EBITDA, the research house said GentingM looked appealing on a risk-reward basis. Its proposed acquisitions of UK and US casinos will exhaust most of its cash, removing the overhang of concern on its plan for its huge cash reserves. Upgrade to BUY; target price RM3.70.
  
  The consensus earnings upgrades post 2Q10 earnings, scheduled to be released in August 2010, would likely trigger a re-rating of the stock.
  
  GentingM offers investors good exposure to the strong and rising domestic consumption story. Competition for its mass market business is likely to be shortlived. Its domestic operation should continue to generate strong cash flows.
  
  Nomura Research said GentingM’s latest move, of proposing to spend most of its cash reserves on two acquisitions, confirmed its view that paying out its cash reserves in the form of higher dividends was the last thing it was contemplating.
  
  The research house said after a series of downgrades by the Street attaching zero value to its cash reserves, there is nothing much left for the market to discount. The latest move also helped remove an overhang on its intention for its cash reserves. (source: here )

Hmmm... do indulge in me while I talk to myself. :D

Hey if you are interested, you are more than welcomed to listen to my private talk.

• Nomura Securities Research Malaysia says the worst is over for Genting Malaysia (GentingM) after the recent sell down and downgrades by the market.
  
  "We believe that all the bad news has been priced in. Fundamentally, we see earnings upgrades as the key catalyst going forward," it said on Thursday, July 15

All the bad news have been priced in.

Let's see... Genting Malaysia on 1st July ended the day trading at 2.74. Then the next day, Genting Malaysia's UN Fortunate Entry Into UK Casino Business.

Genting Malaysia lost 12 sen to close at 2.62. Genting Malaysia yesterday closed at 2.68.

So this means 'all the bad news have been priced in'? Hmm... so the WORST is over?

Is it?

And I see Nomura Securities Research Malaysia acknowledges that this is BAD NEWS.

• Its proposed acquisitions of UK and US casinos will exhaust most of its cash, removing the overhang of concern on its plan for its huge cash reserves.

LOL!

I fell off my chair. Really. :P

Removing the overhang concern in regards to Genting Malaysia's huge cash reserves???

Oh.... OK... OK... OK...

Having huge cash reserves causes overhang concerns.

Ditto that. :D

• Nomura Research said GentingM’s latest move, of proposing to spend most of its cash reserves on two acquisitions, confirmed its view that paying out its cash reserves in the form of higher dividends was the last thing it was contemplating.

Hmmm.... so Nomura says.... paying shareholders in the form of higher dividends was THE LAST THING Genting Malaysia is contemplating eh?

It rather spend most of its cash reserves on acquiring companies that its major shareholder owns a huge stake, eh? Spending most of its cash reserves on related party transactions is good eh?

LOL!

• The research house said after a series of downgrades by the Street attaching zero value to its cash reserves, there is nothing much left for the market to discount. The latest move also helped remove an overhang on its intention for its cash reserves.

LOL!

Yeah... what is else there to discount?

Since there is nothing else to discount... LOL!... best thing to do is... BUY! BUY! BUY!

hmmm..... :D

ps: I am merely talking to myself. :D

Genting Malaysia's UN Fortunate Entry Into UK Casino Business

Genting Malaysia or Resorts World is slammed down again!

Why? Yet another Related Party Transactions (RPT) !!!!

On Star Business: Genting buys UK casino businesses for RM1.7b

• Genting Malaysia Bhd will acquire its Singapore affiliate’s casino businesses in Britain for £340mil (about RM1.67bil)...

Now for a RM 1.67 Billion transaction, I felt utterly disgusted that the news article did not mention how Genting Uk is faring as a business.

For the less savy investing public, what good is that article?

Here is the Bursa announcement: GENTING MALAYSIA BERHAD PROPOSED ACQUISITION OF GENTING SINGAPORE PLC’S CASINO BUSINESSES IN THE UNITED KINGDOM FOR A TOTAL CASH CONSIDERATION OF £340 MILLION.

Now if the investor opens the pdf file attached: Ann - 01072010.pdf

• On behalf of Genting Malaysia Berhad (“GENM”)’s Board of Directors (“Board”), we wish to announce that Genting Worldwide (UK) Limited (formerly known as Feste Limited) (“GWWUK”), a wholly-owned subsidiary of Genting Worldwide Limited which in turn is a wholly-owned subsidiary of GENM, has on 1 July 2010 entered into a conditional sale and purchase agreement (“SPA”) with Genting Singapore PLC (“GENS”) to acquire from GENS its100% equity interests in Nedby Limited (“Nedby”), Palomino Star Limited (“PSL”), Palomino World Limited (“PWL”) and Genting International Enterprises (Singapore) Pte Ltd (“GIESPL”) for a total cash consideration of £340 million (“Proposed Acquisition”).

Here is Nedby's proforma...

Genting Malaysia only supplies that info? Is that enough? Why no 2007 numbers? Why no 2008 numbers?

Anyway.. current 3 months of fy 2010... Nedby lost some £194 million. And has some £ 64.3 million in borrowings.

Here is PSL's proforma.

Not much losses.. no loans.

PWL...

• PWL and its subsidiary Palomino World (UK) Limited (“PWL Group”) have not commenced operations as at 31 March 2010. Based on the pro forma group accounts of the PWL Group as at 31 March 2010, the PWL Group has NA of £113,008 (based on the information provided by the management of GENS and is subject to the completion of the legal, financial and taxation due diligence audit and review by auditors).

And here is GIESPL

Barely profitable and GIESPL carris some £34.825 million in loans.

Which gives the total group bought by Genting Malaysia the following numbers...

In layman's term, Genting Malaysia bought from it's associate company, Genting Singapore, (yes, some call this as a related party transaction, where one company within a group, sells to another, or some would crudely say, 'left hand sell to right hand') its casino business in UK.

Sum to be paid? £340million.

What do shareholders of Genting Malaysia get in return?

Genting Uk, current 3 months of THIS fiscal year, is losing some £184.625mil and this company carries some £99 mil in borrowings!

Gee it would be nice if Star Business prints out this FINE detail of the transaction, yes?

So does it make sense?

Oh yeah... since it's related business, some would crudely call it a BAILOUT!

And best of it all, I saw the following news flash...

• DJ MARKET TALK: Genting Singapore +1.7%; Fortunate UK Exit -Citi
  Dow Jones Newswires 02 Jul 2010 9:50am
  
  0150 GMT [Dow Jones] Genting Singapore (G13.SG) +1.7% at S$1.20 as proposed GBP340 million (S$688.8 million) sale of money-losing U.K. operations to sister company Genting Malaysia (4715.KU) fuels hopes for stronger earnings profile. While Genting Singapore will book FX translation loss of S$338 million this year, bottom-line excluding exceptional item expected to improve. "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa." Still, keeps Sell call, S$0.65 target on valuation grounds. Orderbook quotes suggest minimal upside beyond S$1.23. (frankie.ho@dowjones.com)

!!!!

Yup! Genting Singapore shares rose! And Genting Malaysia got hammered! And note the comments in red...

• "Considering that the U.K. gaming operating business remains very tough, we view this exit as an escape for Genting Singapore and we view it as fortunate in that there was a buyer in the market," says Citigroup; "it means Genting U.K. will no longer drag on the performance of Resorts World Sentosa."

How FORTUNATE!

The buyer is the related Genting Malaysia!

How FORTUNATE!

Need I say more?

Oh yeah, I must sress that since it's FORTUNATE for Genting Singapore... it surely means ... how UN FORTUNATE for Genting Malaysia!

And seriously, I do not feel sorry for the minority shareholders in Genting Malaysia.

Seriously I don't.

Look this related party transaction thing had been happening over and over and over again!

Posted Dec 2009. (Yeah... Dec 2009 and its now only Jul 2010 and Genting Malaysia has oops and done it all over again!) MSWG Slams Genting Malaysia For Its RPT Land Deal!

• Some investors do not forget about poor corporate governance. It takes away the issue of 'trust' in one's investment.
  
  Put it this way. Investment usually takes a much longer time frame before one reaps the profit and during this 'longer' time frame, the investor would not like to see poor corporate governance issues involving RPT because they know each RPT (how could a transaction/deal make sense when the 'left hand' sells to the 'right hand') could cause the stock to get a hammering in the market. Now if one cannot 'trust' the company, then how could one have the guarantee of not enduring yet another RPT transaction from the company? And how many RPTs have we seen from Genting group recently? Did one forget the last one? And does a leopard ever lose its spots?
  
  And seriously, Genting Malaysia, do show some respect to your minority shareholders!
  
  Blogged recently: Genting Malaysia Buys Properties From Genting Bhd

ps. back then.. the stock got hammered. Today, the stock got hammered again! Groundhog day?

ps: remember 2008? remember Walker Digital Gaming LLC (WDG) fisaco? (ps who owns WDG?)

ps: Buy Genting Malaysia because of it's massive cash war chest? Well, what good is such a war chest to the minority shareholder when the company keeps making such acquisitions?

MSWG Slams Genting Malaysia For Its RPT Land Deal!

On the Business Times:

• 'Genting Malaysia should have let minority shareholders decide'
  
  By Adeline Paul Raj Published: 2009/12/16
  
  Genting Malaysia bought two firms which own the 25-storey Wisma Genting and two parcels of land in Segambut for RM228.6 million from its parent, Genting Bhd
  
  Genting Malaysia Bhd (GenM) (4715) should have, in the spirit of good corporate governance, sought the approval of its minority shareholders for its latest related party transactions (RPTs), Minority Shareholder Watchdog Group (MSWG) said.
  
  GenM, a casino and hotel operator, told the stock exchange last Tuesday that it planned to buy two firms which own properties in Kuala Lumpur - the 25-storey Wisma Genting and two parcels of land in Segambut - for RM228.6 million from its parent, Genting Bhd. It has since completed the deals.
  
  It did not need to get the approval of shareholders or regulators for the purchases as the price did not exceed 5 per cent of its shareholder funds.
  
  However, MSWG believes that GenM, nevertheless, should have let its minority shareholders decide.
  
  "Given the dominant board structure, common major shareholders and common directors in related companies involved in the proposals and the absolute cash amounts involved, the proposed acquisitions ought to be put to non-interested shareholders for a vote by the minority shareholders of GenM even though the rules stipulate a higher threshold," MSWG chief executive officer Rita Benoy Bushon told Business Times.
  
  She voiced hopes that the regulators would look into RPTs of this nature and reduce the threshold level to, say, 2 per cent instead of the current 5 per cent, especially for deals not in the ordinary course of business.
  
  Industry sources said that it might be a good thing as the rule was a bit of a grey area in that it provided a loophole for some listed companies to undertake questionable RPTs.
  
  Still, the same sources said that lowering the threshold to get shareholders' approval for RPTs would be cumbersome, costly and lengthy for listed companies to get a deal through.
  
  In GenM's case, analysts believe that the price it paid for the two companies was fair. It ended up paying RM284 million in total as it also had to settle the two firms' debts to Genting.
  
  However, the purchases, done exactly a year after GenM's last RPT sent its stock tumbling, raised doubts, especially among dividend-hungry shareholders, as to how it would use its sizeable cash balance of RM5.2 billion.
  
  There was concern that there might be more RPTs in the pipeline. Going by listing rules, GenM can undertake more RPTs of up to RM214 million over the next 12 months without getting shareholder approval, an OSK Research analyst noted.
  
  MSWG also felt that GenM's disclosure about its latest RPTs could have been better. It would have been good if it had included an illustration of the effects of the proposed acquisitions on its net assets, earnings and dividends in the current and longer term, it said.
  
  Two days after GenM made its announcement about the RPTs to Bursa Malaysia, the regulator asked the company to release more information about how it derived the pricing.
  
  GenM furnished that information the next day, the same day it completed the transactions.

Well done MSWG!

Some investors do not forget about poor corporate governance. It takes away the issue of 'trust' in one's investment.

Put it this way. Investment usually takes a much longer time frame before one reaps the profit and during this 'longer' time frame, the investor would not like to see poor corporate governance issues involving RPT because they know each RPT (how could a transaction/deal make sense when the 'left hand' sells to the 'right hand') could cause the stock to get a hammering in the market. Now if one cannot 'trust' the company, then how could one have the guarantee of not enduring yet another RPT transaction from the company? And how many RPTs have we seen from Genting group recently? Did one forget the last one? And does a leopard ever lose its spots?

And seriously, Genting Malaysia, do show some respect to your minority shareholders!

Blogged recently: Genting Malaysia Buys Properties From Genting Bhd

Genting Malaysia Buys Properties From Genting Bhd

Yeah, it's a known fact that Genting Malaysia (Resorts World) is a cash rich company.

It's a known fact that most suggest buying Genting Malaysia for it's so-called cash-per-share yardstick.

Some don't like this yardstick.

I don't also.

Because this yardstick is not a fool proof investing strategy.

Why?

Because, ultimately the decision on how the company uses the cash in the company is beyond the say of the minority shareholders. For example, if the company decides to splash the cash at some questionable investments, we, the minority shareholders, can only make some noise over. And more often than not, it's just some empty tin cans making lots of noises.

Anyway, on the Edge Financial Daily Genting M'sia buying PROPERTIES from parent for RM228.64m!

• Genting M'sia buying properties from parent for RM228.64m
  Written by Joseph Chin
  Tuesday, 08 December 2009 19:30
  
  KUALA LUMPUR: Genting Malaysia Bhd (formerly RESORTS WORLD BHD []) has entered into two related party transactions with its parent GENTING BHD [] by proposing to buy two companies and their PROPERTIES [], for a total of RM228.64 million.
  
  Oakwood owns the 25-storey Wisma Genting in Kuala Lumpur while GHTP owns two parcels of land in Segambut, Kuala Lumpur.
  
  Genting Malaysia, as the largest single tenant, occupies eight floors and two basement levels in Wisma Genting for a total annual rental of RM3 million. The first acquisition will thus enable Genting Malaysia to reduce its annual rental expenses at the consolidated level.
  
  "In addition, Genting Malaysia will earn an annual rental income of approximately RM17.3 million from the other tenants of Wisma Genting, who will provide a source of sustained recurring income and long term value for the property," it said.
  
  As for the acquisition of the Segambut land, which Genting Malaysia is using as a storage area and depot for its buses and limousines, it will reduce its rental expenses at the consolidated level by about RM300,000 annually.
  
  "In addition, there is potential for the Segambut land to be developed and improved upon, either for Genting Malaysia’s use or for other future purposes," it said.

A related party transaction!!!

Don't you hate such transactions??!!

Buying property from its parent, which ultimately means, money going from left hand to right hand!

Does Genting Malayisa really needs to buy these properties at all???

And is Genting Bhd in dire need of funding that it needs to use such low inter-company sales agreement to raise funds???

Aseambankers Comments On Resort World And MGM Mirage

This morning I wrote about Resorts World Invests In MGM Mirage

I just saw Aseambankers comments on Resorts World.


As expected, Aseambankers did not even mention the poor financial health of MGM Mirage.

Resorts World Invests In MGM Mirage

On The Financial Edge Daily: RWB subscribes US$50m MGM Mirage's notes

• RWB subscribes US$50m MGM Mirage's notes
  Written by Joy Lee
  Wednesday, 20 May 2009 22:39
  
  KUALA LUMPUR: Resorts World Ltd, an indirect wholly-owned subsidiary of Resorts World Bhd (RWB), has completed the subscription of US$50 million (RM176 million) of senior secured notes issued by MGM Mirage, Inc.
  
  The notes comprise US$25 million 10.375% notes due in May 2014 and US$25 million 11.125% notes due in November 2017.
  
  "The notes were offered by MGM as part of a placement of US$1.5 billion in aggregate principal amount of the notes, as first announced by MGM on May 13, 2009, the proceeds of which will be used by MGM to part settle some of its outstanding debts and for general corporate purposes," RWB said in statement today.
  
  It added the notes were secured by a first-priority lien on substantially all of the assets of the Bellagio Hotel and Casino and the Mirage Hotel and Casino, both located in Las Vegas, and were general senior obligations of MGM, guaranteed by substantially all of its subsidiaries and equal in right of payment with all existing or future indebtedness of MGM and each guarantor.
  
  RWB said the subscription represented a good opportunity to expand its investment portfolio and enhance returns on its existing cash balances.
  
  It added that with yield returns in excess of 10%, the investment would generate an attractive return compared to what was currently attainable in the money markets or in other secured investments regionally, especially within the RWB group's core leisure and hospitality industry, it added.
  
  "Further, the notes will be secured against high quality gaming and entertainment assets in Las Vegas, thereby giving downside risk protection to the investment," it said.
  
  MGM, which is listed on the New York Stock Exchange, is one of the world's leading casino entertainment providers, owning and operating 16 properties in the US.
  
  MGM also has 50% interests in four other properties in Nevada, New Jersey, Illinois and Macau. For the financial year ended Dec 31, 2008, MGM group recorded net revenues of about US$7.2 billion.

Just blogged on Tuesday on the massive global stock sale or also known as secondary offerings, Worldwide Blockbuster Stock Sale. And for MGM see MGM Mirage Shares Fall After Stock Sale Is Completed

The yield is no doubt attractive.

However, the downside risk protection mentioned is rather questionable.

Listed companies do not issue secondary offerings without reasoning. They do so because they need fresh capital. And most of the time (not all), the fresh capital is required as part of a company restructuring exercise. And you know what restructure ultimately means. It's a nice word used to describe the correction of past mistakes. This is my flawed view.

So what about MGM Mirage.

No doubt the name is glamorous and its name has the worldwide branding. Talk about gambling and Las Vegas, MGM Mirage is one of the name.

Now MGM had been mentioned on this blog before. On Wednesday, March 04, 2009 MGM Mirage, Yet Another Casino Operator In Huge Trouble

Let me highlight the posting here again.

• LAS VEGAS (AP) — MGM Mirage Inc., the gambling company owned by billionaire investor Kirk Kerkorian, said Tuesday that it may default on its debt amid development of its biggest casino project ever, the $8.6 billion CityCenter in Las Vegas.
  
  Unless the economy turns around and more people start gambling again, the Las Vegas-based casino company believes it will break its loan agreements this year, it said in a filing with the Securities and Exchange Commission.
  
  That would mean a default on its senior credit facility, which MGM has asked to modify.
  
  MGM Mirage will delay filing its annual report until March 17 because it is still assessing its financial position and liquidity needs, the company said in Tuesday's unscheduled filing. One factor in the delay, the company reported, was its decision last week to tap $842 million of its $4.5 billion senior revolving credit agreement to cover general expenses.
  
  As of the end of September 2008, MGM Mirage had $13.29 billion in long-term debt.
  
  Many U.S. casino companies borrowed huge sums in the last few years to develop resorts in the United States and abroad. But several are having trouble making payments on that debt because their revenue has fallen sharply over the past year as fewer patrons spend less money on gambling and services.
  
  Chief Executive Jim Murren, who took over late last year, has said the company is exploring a half-dozen deals around the world in which MGM Mirage would lend its name and expertise to generate income.
  
  It sold the Treasure Island casino on the Las Vegas Strip to Kansas billionaire Phil Ruffin for $775 million and has since been shopping other properties, including nearly 300 acres of land in Nevada and Atlantic City, N.J., and two airplanes.
  
  MGM Mirage has not reported on its financial position since September nor posted its earnings for the quarter that ended Dec. 31.
  
  The March 17 report is to include an auditor's assessment of whether MGM Mirage can continue as a company.
  
  Another casino operator, Las Vegas Sands Corp., faced similar questions from its auditor in November, but the concerns were removed after the company raised $2.1 billion in capital by selling common stock and preferred stock with warrants. In September, Sands' billionaire founder and CEO Sheldon Adelson and his wife invested $475 million in the company to help meet its debt obligations.
  
  MGM Mirage has said it still needs to raise $1.2 billion to finish CityCenter on the Las Vegas Strip. The 67-acre complex of hotels, a casino, condos and retail space has been called the largest privately financed project in U.S. history. CityCenter is a joint venture of MGM Mirage and Dubai World subsidiary Infinity World Development Corp. Dubai World also owns a 9.4 percent stake in MGM Mirage.
  
  Analyst Robin Farley of UBS Investment Research told investors on Tuesday that MGM Mirage and Dubai World each need to fund about $1.3 billion for CityCenter this year.
  
  "MGM had expected to fund their portion with condo sales proceeds; however, we expect many of the condo sales may not close," Farley said.
  
  MGM Mirage's profit during the first three quarters of 2008 fell 59 percent compared with the same period in 2007, from $712.21 million to $292.7 million.
  
  Joseph Weinert, senior vice president of casino consulting business Spectrum Gaming Group in Linwood, N.J., said MGM Mirage's filing on Tuesday is a sign of the times.
  
  "When you have one of the industry giants walking a financial tightrope, it really speaks to the state of the whole industry," Weinert said. "MGM is a widely respected company both on Wall street and in the gaming street, and to see a company like that in the situation it's in, it's a troubling sign for Las Vegas."
  
  Shares of MGM Mirage dropped 37 cents, or 14 percent, to $2.25 in after-hours electronic trading. It ended the regular session at $2.62, down 43 cents or 14 percent from its previous close. The stock has lost most of its value since peaking at $64.73 last March.
  
  In the last year, the 91-year-old Kerkorian's majority stake in the company shrank in value from $9.6 billion to about $390 million.
  
  Kerkorian's Tracinda Corp., based in Beverly Hills, Calif., also holds stakes in Ford Motor Co. and Delta Petroleum Corp.
  
  Tracinda sold part of its stake in Ford in October, taking millions of dollars in losses. Kerkorian, a longtime casino and hotel developer, has a mixed track record with the other two major U.S. automakers, including an unsuccessful $4.5 billion cash offer for Chrysler last year and his push for General Motors Corp. to form an alliance with Nissan Motor Co. and Renault SA in 2006.
  
  Tracinda also was Chrysler's largest shareholder at the time of its 1998 combination with Daimler-Benz.

see also Betting On The Casino Industry?

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As stated, the casino industry in the US simply over borrowed and they used the funds to build godzilla sized casino projects (Hello Sentosa!) but with revenue plunging due to fewer patrons spending less money, the risk is that the projects could turn into massive white elephants. And when these massive white elephants are funded by massive borrowings, would one boldly dare say that the downside risk is protected just because of the MGM Mirage brand name?

Would you?

Yeah the yield is fantastic but given the current economics woes, isn't this why the yield is so fantastic?

Oh for sure, no risk no gain.

But risking too much is not too bright either.

How now my dearest Brown Cow?