Genting Singapore launches $1.14 billion rights issue

Resorts and casino operator Genting Singapore yesterday launched a rights issue that could raise up to S$1.63 billion ($1.14 billion). When completed, the deal will consolidate Singapore's position as the most active market for rights issues in Asia this year, in terms of deal value.

A total of 2.04 billion new ordinary Genting Singapore shares are on offer at a ratio of one rights share for every five existing shares. The price is S$0.80 per share, a 32.8% discount to Tuesday's closing price of S$1.19, and a 28.9% discount versus the theoretical ex-rights price (Terp) of S$1.125 per share. The rights issue price is nearly double the S$0.415 price the stock was trading at in early March.

The discount to Terp for the Genting Singapore deal is generally in line with the discount offered by other rights issues launched by Singapore-listed companies this year: property developer Keppel Land's $478 million rights issue had a 27.6% discount to Terp; frozen food company Pacific Andes Holdings raised $143 million by offering a 34.2% discount; and Starhill Global Real Estate Investment Trust raised $234 million at a 29.3% discount. There are exceptions though -- Golden Agri-Resources went out, at the end of May, with a 56.2% discount to Terp.

Genting Singapore said in a stock exchange filing that "the rights issue is undertaken to pro-actively strengthen the group's balance sheet, enhance its financial flexibility and competitive position and facilitate future business expansion". More specifically, the company will use 60% of the money raised to fund future acquisitions, investments and joint ventures. The remaining 40% will be working capital.

The company's stock was suspended from trading yesterday. Even before the announcement, analysts predicted a rights issue, but could not fully fathom the reasoning behind it. Malaysia's Ambank, pointed out that the company still has sufficient funds for its flagship project, Resorts World at Sentosa, since it has only drawn down S$1.7 billion out of a potential S$4.2 billion loan. One explanation, speculated the bank, could be that the project has gone over budget and that the capital is intended to fill the gap.

Resorts World at Sentosa is a 49-hectare resort on the Singaporean island of Sentosa. The integrated complex will contain six hotels, a casino, and several theme parks. It will cost $6 billion and is expected to open in early 2010. Genting Singapore already has resorts and casinos in Australia, Malaysia, the Philippines and the United Kingdom. It is a subsidiary of Genting Berhad, a Malaysian investment holding and management company. The parent company, via its subsidiary Genting Overseas Holdings, will subscribe in full to the 1.04 billion shares that it is entitled to because of its 51% stake in Genting Singapore.

A plethora of banks are working on the rights issue: DBS Bank and CIMB Bank are joint financial advisors and lead managers for the deal, while DBS, CIMB-GK Securities, J.P. Morgan, ABN AMRO, CLSA, Deutsche Bank, HSBC and UBS are joint lead underwriters.

Singaporean rights issues have given banks a constant stream of revenue this year. With $4.8 billion raised year-to-date, according to Dealogic, the island nation has a 41.6% share of the total rights issues in Asia. The next country, Korea, is somewhat behind with a 25.6% share worth $2.95 billion. While these volume figures correctly show how active Singapore issuance has been in relation to other markets, they do understate the actual dollar amount raised since Dealogic doesn't include the portion of a rights issue that is taken up by controlling shareholders under their entitlements.