Genting Bhd - Completes RM1.45bil MTN programme

Recommendation: Buy
Share price: RM7.15
Fair value: RM8.95

* Genting Bhd announced to Bursa Malaysia that it had sold RM1.45bil in 10-year medium terms notes (MTN). The MTN was oversubscribed by 1.7x. Book-building process ended on 28 October 2009 with the bonds priced at 5.3% p.a. - payable semi-annually.

* Genting Bhd had originally targeted to raise RM900mil as its first tranche but due to strong response, the group upsized the issue to RM1.45bil.

* The issuance of MTN was not a surprise as Genting Bhd had earlier announced that it would be establishing a RM1.6bil programme over 15 years. First issuance of the MTN was to take place within two years from date of approval by the Securities Commission.

* We believe that proceeds from its MTN will be used to refinance a loan taken to fund Genting Bhd's entitlement to Genting Singapore Ltd's 1-for-5 rights issue. Cost of Genting Bhd's rights entitlement was about RM2bil.

* As its MTN amounts to about RM1.45bil, this means Genting Bhd will most likely use internally generated funds to finance its remaining subscription cost of RM0.6bil in respect of Genting Singapore's rights issue.

* We had previously estimated that Genting Bhd received about RM180mil in dividends from Genting Malaysia Bhd and Genting Plantations Bhd last year. Company level net cash amounted to RM310mil as at end-December 2008.

* Based on its coupon rate of 5.3%, the MTN will reduce Genting Bhd's FY10F net profit by 4% to RM1.25bil. There is likelihood that Genting Bhd may rely on higher dividends from its subsidiaries for the coupon payments.

* Impact of MTN coupon payments on Genting Bhd's earnings is not significant. As such, we are maintaining our BUY recommendation on Genting Bhd for its gaming exposure in Malaysia, Singapore and Britain.

* In another development, Genting Bhd's chief executive Tan Sri Lim Kok Thay said that "Resorts World at Sentosa" (RWS) is on track to open by early-January 2010. We view this positively as the group would then be able to enjoy a full-year's contribution of earnings from RWS. For FY10F, we have forecast that Genting Singapore Ltd would record a net loss of S$10mil before turning in a net profit of S$345mil.