GENM (4715) GENTING MALAYSIA : RPT Gone Bad!
After the market close on 7 August, GenM announced that it would acquire
a 46%-stake in Nasdaq-listed Empire Resorts Inc from its major
shareholder at USD128.6 million (or at a price of USD9.74 apiece) (here).
On 8 August, GenM share price dropped sharply due to concern about this
related party transaction. On 9 August, investors began buying into the
stock on the hope that GenM would recover after a few quarters down the
road.
Yesterday, Empire Resorts share price plunged 12% to close at USD8.18 on
news that the company has highlighted to its shareholders that it is
contemplating the option of filing for voluntary bankruptcy during the
announcement of its result to enable it to easier restructure its
borrowings (here).
To be fair, bankruptcy filings may be a tactical move which savvy
investors and companies would employ in order to regulate their affair.
However, normal investors are put off by this move which suggests the
company's financial condition is quite bad. Even for a well-read person
like myself, the move by the major shareholder to tap his listed vehicle
for fund to finance its loss-making company in New York is not
appropriate. What makes this transaction even worse are:
1. the announcement was not made with full candor regarding the state of financial condition of Empire Resorts;
2. the shareholders do not have an option to vote on the acquisition as the purchase consideration is below the 5% asset value threshold; and
3. the purchase price is now higher than the current market price.
As this seemingly unfair transaction will likely affect market
perception about the Genting group, I expect the share prices of the
group's listed vehicles will trade at a discount for a while until
investors have forgotten about their bad experience. For now, I think it
is best to avoid this group unless the share prices have dropped
significantly enough as to warrant a trading BUY.
Chart 1: Genm's monthly chart as at Aug 13, 2018_12.30 (Source: Malaysiastock.com)
Chart 2: Genting's monthly chart as at Aug 13, 2018_12.30 (Source: Malaysiastock.com)
http://nexttrade.blogspot.com/2019/08/genm-rpt-gone-bad.html
