Wednesday, December 09, 2009

Genting Babies - Left Hand, Right Hand & Minority Interests

I am not sure the term "minority interest" appears in Genting's corporate vocabulary.

Genting Malaysia (Resorts) had entered into S&P agreements with parent Genting Berhad to acquire:
a) 25-storey Wisma Genting office building for RM259.6m (including RM46.9m debt owed to Genting Berhad) ; and
b) Segambut land comprising 2 adjoining land parcels with total area of 380,906 sq ft for
RM24.6m (including RM8.6m debt owed to Genting Berhad) .

Both acquisitions will be financed from Genting Malaysia's cash reserves ofRM5.2b as of 30 Sept 09. Independent market valuation for Wisma Genting and Segambut Land at RM277m and RM25.8m respectively. The acquisition price for Wisma Genting and Segambut Land imply a 6.3% and 4.7% discount to the market valuation respectively.

The purchase price at: a) RM635 per sq ft for Wisma Genting; and b) RM65 per sq ft for Segambut Land. Rental savings and income from property investments. Genting Malaysia is currently the single largest tenant for Wisma Genting, occupying 8 floors and 2 basement levels for an annual rental of about RM3.0m. Apart from the rental saving , group will also receive an annual rental income of RM17.3m from other tenants. Together with the savings, investment in Wisma Genting will provides a decent yield of 0.7%. Annual rental savings of about RM0.3m is also expected from the Segambut land as group is the sole tenant renting part of the land as storage area for its buses and limousines . As the Segambut land is only 12% occupied as storage, there is potential to convert the remaining land for property development.

#1: You cannot just say to yourselves that this related party transactions was transparent and above board. You must have the appearance of being transparent as well. Having the same-one valuer does not look good. By right, both the companies should appoint their own valuer, not just one valuation company.

#2: Board composition:
Genting Malaysia (Resorts)
Alwi bin Jantan - Independent director
Wan Sidek Rahman - Independent director
Mohd Haniff Omar (on Genting Bhd board)
Lim Kok Thay (on Genting Bhd board)
Clifford Herbert - Independent director
Loh Bee Hong (on Genting Bhd board)
Lin See Yan - Independent director - (on Genting Bhd board as Independent director as well)
Quah Chek Tin - Independent director - (on Genting Bhd board as Independent director as well)
Mohd Zahidi Zainuddin - Independent director

Thillainathan Ramasamy - Genting Bhd's Independent director
Chin Kwai Yoong - Genting Bhd's Independent director
Nik Hashim Nik Yusoff - Genting Bhd's Independent director

How can you justify having 2 independent directors THAT sits on both companies, one which owns 47% of the other, and call those two directors as independent directors??? Somebody give us a proper business dictionary please!!!!

You not only need to be transparent in your dealings but must appear to be transparent as well. The board's composition for both boards have more double counts than really independent directors. Something needs to be done already with regards to the board's composition, because if not, every single related party transaction now and in the future will ALWAYS be seen in a "conspiratorial" manner. For such an important and visible and international listed company, professionalism and global best practices should be adopted. The company should try to shed its "family company" image if its to continue to global investors respect and recognition for being a well run, transparent, professional and 'above board at all times' kind of company.

#3 Cash extraction - The move may be interpreted as the parent extracting cash from Genting Malaysia. Technically, the move actually provides good yields to Genting Malaysia. But that is not the point or the major concern - if its good for one party, it must be not so good for the other party. Questions will surface as to why Genting Malaysia is being used to keep properties and land, is that a long term strategy to accumulate properties or a slipshod move, neither here nor there. Why is Genting Berhad hiving off assets, is that a long term strategy to be purely gaming - NO of course, have you had a look at Genting Berhad's portfolio???

#4 - Genting Berhad's portfolio dissection - Please tell me how the RPT make sense when in your portfolio of assets you have the following:
a) Genting Malaysia 47%
b) Genting Singapore 54.3%
c) Genting Plantations 54.7%
d) Landmarks 30.3%
e) Oil & Gas ?? (RM1.9bn market value)
f) Power ?? (RM3.0bn market value)
g) Licensing & mgmt fees ?? (RM5.7bn market value)

If you wish to do as you like, then for heaven's sake take the whole bloody thing private. If you want to run it like a family concern, take the whole thing private. You cannot try and tap capital and have investors on board (no matter how small they may be compared to the controlling interest) and still run it like its a family affair.

Considering that the mainshareholder of Genting Berhad shows only Kien Huat Realty with 32.32%, the next few substantial shareholders stand at: 3.8%; 3.57%; 3.3% and 2.6% ... that clearly shows that the free float is huge, i.e. the minority interest is bloody huge.

To the minority interest of Genting Berhad, I am sure having an open tender would have shut 99.99% of us up, it would have shut me up for sure. An open tender may have gotten a better price for Genting Berhad ~ why leave that question mark in our minds, leaves a bloody bitter taste even for such a small transaction. If we cannot "trust you" in these small transactions, how can we trust you in bigger ones?

p/s photo: Dhini Aminarti


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Raymond said...

This is the major problem with many Malaysian family or individual owned conglomarates, just name a few: Genting, IOI, Lion Group, Berjaya, Maxis that run their companies without any regards for minority shareholders' interest. One should only buy their shares in a hit and run manner. Never mention the word "invest" for this kind of companies.
Obviously only Western and Japanese managed companies such as Nestle, Dutch Lady, Aeon etc deserve your truly long term investment money. At least you won't be spooked by the bloody RPT or whimsical action as and when the tycoons have the itch for it.