More Investment in MGM Notes
GENM has invested another US$48m (RM153m) in MGM
Mirage’s 4.25% 2010/2015 convertible senior notes as part
of the latter’s recent US$1.15b placement. This is on top of
GENM’s earlier:
a) US$18m investment in MGM’s 9% 2010/2020 senior
secured notes in Mar 2010, and
b) US$25m in 10.375% notes due May 2014 and
US$25m 11.125% notes due Nov 2017 in May 2009.
This brings GENM’s total investment in MGM to US$116m
(RM371m). Back in May 09, Genting Bhd had also invested
US$100m for a 3.2% equity stake in MGM and US$50m in
similar senior secured notes as GENM.
The latest notes proceeds will be used to repay a portion of
MGM’s revolving indebtedness under its senior credit
facility. The notes are general unsecured senior obligations
of MGM, guaranteed by substantially all of its subsidiaries.
Interest is payable semi-annually, and the notes are
convertible anytime at an initial conversion price of
US$18.58 (27.5% premium to MGM’s share price).
Minimal impact to GENM’s earnings and RM5.2b cash
reserve. We try not to read too much into the investment
given the small quantum, although the notes’ coupon does
seem rather unattractive (almost similar to Malaysian
Government Securities 10-year yield of 4%). Genting group
was reported to be interested in investing in US, and this
could be a pre-cursor to bigger things to come. MGM had
indicated in Mar 2010 that it would be selling its 50% stake
in Borgata Hotel Casino & Spa in Atlantic City as part of a
settlement with the New Jersey Division of Gaming
Enforcement (the New Jersey casino controller had
expressed concern over MGM’s ties with Pansy Ho, its JV
partner in Macau).
Maintain Buy on GENM and sum-of-parts TP of RM3.90.
Potential catalysts: a) Resilient Malaysian gaming operations
despite the opening of Singapore IRs (85% visitors to
Gentings Highlands are local with 75% being day-trippers),
and b) Opportunistic M&As with RM5.2b cash reserve.
Valuation remains attractive at 9.3x 2011 PE (ex-cash) and
5.6x EV/EBITDA.
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