A cruise ship operator controlled by Malaysian tycoon Lim Kok Thay suspended all payments to creditors, triggering a 36% drop in the company’s shares and denting investor confidence in Lim’s wider business empire.
Genting Hong Kong Ltd. said it will use its available funds to maintain critical services for the company’s operations and asked creditors to form a steering committee to evaluate a planned restructuring proposal, according to a statement to the Hong Kong stock exchange on Wednesday night. The company owed a total of $3.4 billion as of July 31, it said.
The firm blamed the cash crunch on the coronavirus pandemic and said the payment halt will likely result in default. Lim owned 69% of the Hong Kong unit’s shares as of April 3, according to data compiled by Bloomberg. Malaysia’s casino-to-hospitality conglomerate Genting Bhd. and its units previously imposed a first group-wide salary cut since its founding in 1965.
“For Genting, the financial stress may push the owner to sell the asset, or liquidate the entire firm,” said Banny Lam, the head of research at CEB International Investment Corp. “Liquidation is not very likely, but there is such a possibility if Lim doesn’t have money and can’t find a buyer for its assets. In that case, equity holders rank behind bond holders to get compensated.”
Genting Hong Kong shares were down 33% at 2:31 p.m. local time, after falling a record 36%. Genting Bhd. shares were untraded due to a holiday in Malaysia. Genting Singapore Ltd. fell 2.8%.
Citigroup Inc said in a note there is “some reputational damage” to Genting group as chairman Lim is the common sponsor of Genting Hong Kong and other group companies. However, it doesn’t see cross-defaults for the group’s other firms.
Malayan Banking Bhd. and RHB Bank Bhd. were the biggest contributors to Genting Hong Kong’s syndicated loans, according to data compiled by Bloomberg based on disclosed allocations at signing.
Genting Hong Kong was formerly known as Star Cruises, and operates the Star Cruises, Dream Cruises and Crystal Cruises lines. Back in February, guests on the World Dream vessel in Hong Kong harbor were quarantined aboard after passengers on a previous voyage tested positive for coronavirus after leaving the cruise.
The firm is behind an under-construction hotel development by Macau’s Nam Van Lake, which may one day host or operate a casino, according to analysts. The project, provisionally titled “Resorts World @ Macau”, is being developed by Treasure Island Entertainment Company, a local enterprise indirectly owned Genting Hong Kong, which promised to develop the property with or without a casino.
Lim’s Genting Bhd. operates casinos and resorts in Las Vegas and Singapore. It famously lost its bid in the 2002 tender for Macau’s gaming concessions. Genting has had to scale back operations as countries impose lockdowns, while consumers shun cruises after a few ships became sites of coronavirus outbreaks. The conglomerate is also involved in property, plantation and energy sectors as well as life sciences.
“Still early days and much will hinge on the outcome of 678 HK’s fund raising exercise and the restructuring of existing indebtedness,” said Jin Rui Oh, a director at United First Partners said. “If this is resolved, then likelier than not to have a positive bearing on the other entities but otherwise, there will be a need to dispose assets to raise cash.”
The Resorts World Las Vegas $1 billion 2029 bonds dropped 6.2 cents to 93.5 cents on the dollar, poised for the largest decline since April, according to Bloomberg-compiled prices. Resorts World Las Vegas is a wholly-owned indirect subsidiary of Genting Bhd. and the latter is the keepwell provider for the securities. MDT/Bloomberg
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