Resorts World, Not The Full Picture Yet

At current prices, Resorts World is about RM20 prior to the share split exercise. The huge jumps in volume sent many scurrying around to look for answers. First bit of news was that Genting Bhd has reduced its shareholding in subsidiary Resorts World Bhd 49.98 percent. This follows two measures it has taken. One is the exchange of US$199.5 million - from the US$300 million one percent guaranteed exchangeable notes due 2008 issued by Genting's wholly-owned subsidiary Prime Venture (Labuan) Ltd - into existing RWB ordinary shares. The other is the conversion of RM655.4 million of the RM1.1 billion nominal value convertible notes issued by RWB into new shares. Genting deputy chairman Tun Mohamed Hanif Omar in a statement to Bursa Malaysia said Genting's percentage shareholding in RWB will continue to be reduced progressively until the exchangeable notes and convertible notes are fully redeemed. Although the company's shareholding in RWB has fallen to below 50 percent RWB will continue to be consolidated as a subsidiary of the company as the company continues to have control of it.

This could be a prelude of things to come. Why would Genting want to dilute down its holdings in Resorts World? To accomodate a new controlling shareholder? Or a new substantial shareholder? Genting / Resorts still sorely lack sufficient exposure to the new Macau strip. Stanley Ho still wants to hedge his bets for his family now that he is near the "exit door". Stanley may not be entirely comfortable or confident of his children being able to ensure his empire continue to flourish for the next 50 years. Genting does not want to irk Singapore anymore, but by reducing Resorts, in the event of new shares issued by Resorts to the new shareholder, Genting may see its stake diluting even further - thus distancing further from ties with Stanley Ho (if indeed Stanley is involved). By getting a stake in Resorts and Star Cruises, it widens Stanley's empire plus being able to close ties with the two most important gaming giants from Asia may ensure synergies for the future - mostly to buy some insurance for his kids when he is gone.

Methinks there is a huge rerating going on for Resorts. At the end of the day the stock is just like a good annuity, churning cash from the single casino. Not much else. Some think that it may give out a big dividend. Well, its cash per share is not much, we are talking som over 5 billion shares here. The likely catalysts for the current run:

a) Sales of 36% stake in Star Cruises. Star Cruises has been cancerous for Resorts World, doing the yearly dilution on earnings and always requiring additional capital. If Star Cruises is removed with a decent price, Resorts world be rerated nicely. But who would buy? The key could be in the recent appointment of D Chua as head of Star Cruises. Good ties with Stanley Ho, and the botched deal with Genting/Sentosa and Stanley Ho could very well see Stanley Ho taking up Star Cruises. It does make sense for his empire as well. Plus Stanley Ho likes big ships.

b) The nature of such a transaction. If it was a clean cash sale, it will be good for Resorts but not very very good. If the transaction involved a share exchange with any one of the Ho's family vehicle operating the new Macau casinos - things would be very very different. Finally Resorts could be in for a complete makeover.

I strongly suspect its this development which is driving the share price. Volume looks very genuine. Worth a punt. Buy and hold till actual news is announced. Resorts-CC looks extremely good now.


resorts cc @ 30cts now the price of its underlying shares must hover around 4.70 ! we are paying almost 100% premium. No wonder the issuers are pilling up to sell. think the cb is a better bet.
Salvatore_Dali said…

cb expires on 20th sep 2007, cc expires on 17 jan 2008 ... although the gearing for cb is double that of cc, i think the time to expiry factors carries my weight in my recommendation
CK said…
Hi Dali, You have a great blog here.Thank you.
I would like to ask will this affect Gening share price in any way?
Salvatore_Dali said…
good for resorts, has to be good for genting as well as it still owns 49% of resorts ... even if that stake gets diluted further, if resorts gets a piece of macau action, its good for everyone. still i would be a bit concerned on making singapore angry if the whole thing pans out.
CK said…
Thanks dali.Genting almost "lost" the IR license in Singapore when they made Singapore mad the last time. This could still be an underlying concern but I am pretty confident this time round, genting will tread more carefully.
simon_alibaba said…
hehe none of the above la think harder or look further but still good buy up to 5. cc too high, cb just on time! not too short not too long.
dali, how about cccc-c1? mother share trading @ 17.60 now. good time to buy its ca?
dali, could u plz tell us why plus ca is trading @ 6cts discount and nobody seems to want to do the conversion?
Salvatore_Dali said…
cccc-1 is a good buy...

as for plus -ca, its at a slight discount of between -1% to -5%. Gearing is extremely good at 8x and time to expiry is still decent at 18 Nov 2007... it has one major negative, its not a volatile stock, just check the implied volatility which is close to zero... for a derivative, you don't mind paying a high premium if the thing is volatile as the pendulum swings will get to your side of the equation, but something that stays stationery does nobody any good except the issuer. Why people don't convert, well, it has to be at a bigger discount than 5% for people to convert... there are transaction costs, holdings cost, the period when you convert and the day you you receive the shares is a risk as well, 5% is not sufficient in my books. Maybe 8% and higher.

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