Inside Asian Gaming

inside asian gaming August 2014 20 Cover Story Las Vegas, the biggest bet on the table, is held separately under Bursa Malaysia-listed parent Genting Berhad, which can bring to bear cash reserves equivalent at the end of 2013 to US$5.6 billion and whose leverage at 21% net gearing is more than comfortable for a company whose cash flow from operations—which is to say, the sum of its three independently traded resort operators—exceeded $1.4 billion last year. Berhad’s A-minus credit standing is the best among Fitch-rated global gaming companies, and Fitch says it doesn’t expect that to change when net debt levels start to rise, as they’re likely to do when construction on the Strip begins later this year. An equity-raising would be another option, and there’s been talk of it ever since the Las Vegas site was purchased last spring and the company immediately publicized its thinking in terms of the scope of the project. A US IPO makes sense on several levels and certainly would fit with the uniquely decentralized setup that defines Genting and allows each of the operating companies to leverage the financial markets and its own balance sheet independently in pursuit of opportunities. “Such was the case for Genting Singapore and Genting Hong Kong associates Travellers International Hotel Group and Norwegian Cruise Line Holdings, which listed on Nasdaq [in January 2013],” Cindy Yeap wrote earlier this year in Malaysian business weekly The Edge . If there is a US appetite for the risks and potential rewards these plans imply, and they are profound, especially with Resorts World Las Vegas in the mix, it would take Wall Street to unlock it. Berhad has no relevance as an operator. Fifty percent of its EBITDA comes from Sentosa, which is separately held under SBX-traded Genting Singapore; 45% comes from the Resorts World Genting complex in Malaysia, held by GENM, which derives upwards of 85% of its EBITDA from it; and GENM is plowing in big money to make it over because it isn’t really growing. From an EV/EBITDA standpoint, GENM trades like a US regional operator. The UK has been the success story in percentage growth terms. EBITDA there was up 17.8% last year. North America was up 7.2% with the addition of Bimini. Combined they accounted for a little over 17% of GENM’s pre-tax earnings. “We know, for instance, that Melco’s US-listed stock trades more than any of the Asian-listed stocks—Sands China, Wynn Macau, even Galaxy—Melco’s is still the strongest,” notes Philip Tulk, director of equity research for the Conglomerates, Hotels and Gaming section of Standard Chartered in Hong Kong. “That may point to the appeal of Genting separately listing their company in the US.” As CIMB Research analyst Lucius Chong has put it, “It makes sense to combine all three strategic assets of [Resorts World New York City], Miami and Las Vegas together and spin them off into a US listing to crystallise their value once their gaming potential materializes.” Mr Tulk adds, “I can see the Nevada regulators appreciating that as well, simply from a transparency point of view. I can see that as being appealing.” could generate more than $60 million a year in operating profit, and Lonny Powell, who heads the Thoroughbred Breeders’ Association, has hailed it as “game-changing” in terms of the boost it promises for breeders, owners and trainers. Reviews elsewhere have been mixed, with one analyst who declined to be identified calling it a “last ditch attempt to make things work” in Miami. “[Genting have] put a lot of money in there. … They’re trying every avenue they can.” Mr Ballard prefers to see it as a creative way into the market. As he told the Herald , “Genting, over the past couple of years, has decided to look at this with a fresh set of eyes.” The problem is the state’s pari-mutuel regulators don’t agree with Gulfstream’s claim that since it owns property straddling the border between Broward and Miami-Dade counties the license is valid in Miami-Dade. So some form of clarification from the Legislature is probably needed. Or the partners must somehow persuade the regulators to review their decision. Alternatively, they can go to court. But that is certain to touch off a barrage of opposing lawsuits. As a lobbyist for a competing racino at Calder Race Course said, “If they issue a permit that allows this to happen, it will draw a legal challenge. I guarantee it. This is an expansion of gambling.” Genting is in no hurry either way. They may be out $420 million in Miami on the land alone, but they’re sitting on 30 acres of prime waterfront—a holding one local developer describes as “epic” in 2014’s rejuvenated Miami property market—a “landmark location,” says another—and the company has the balance sheet to wait out events. “We’re here for the long haul,” Mr Goode has said. “We still think a large destination resort is something that would have a very dramatic positive impact on the South Florida economy. But we’ve moved on and realized there is a different path.” Which “is not a bad strategy,” says Andrew Klebanow, a principal with Las Vegas-based Global Market Advisors. “They have two very, very good pieces of real estate. They may not get the licenses they want, but those assets will continue to grow in value. … They’re going to move forward with the mixed use, and obviously they’re going to ask the state at some point for an opportunity to develop gaming. They’re not going to lose their money on it. They will get a reasonable return on it. If they can get gaming on it, they’re going to hit a home run.” Genting is partnering with Gulfstream Park on a plan to transfer to Miami one of the thoroughbred track’s casino licenses.