Genting Singapore

CITI INVESTMENT RESEARCH on 2 March 2012

GENTING Singapore (GENS) finalised the pricing of its $1.8 billion, 5.125 per cent perpetual subordinated capital securities. The distribution is payable semi-annually in arrears. The distribution rate is subject to a step-up on Sept 12, 2022. The securities may be redeemed at the option of GENS in whole, but not in part, on Sept 12, 2017 or any distribution payment date thereafter. The securities are expected to be issued on March 12, 2012.

Implications to common shareholders: We believe the perpetual securities will be accounted for as equity. The annual distribution to perpetual security holders is estimated to reduce profit attributable to common shareholders by about $92 million. More importantly, we believe that GENS cannot pay common shareholders any dividends before they satisfy the distributions payable to the perpetual holders.

Use of proceeds: According to management, the funds raised will be used towards funding general corporate expenses and financing capital expenditures and expansion of its business. Given management's guidance of capex requirement of only about $500 million in 2012 and the dividend payment of about $122 million, we suspect most of the funds raised will be used towards investment opportunities outside Singapore. Management views this as a good opportunity to build up its war chest, but we question the timing of such a fundraising exercise.

Maintain sell: We lower our 2012-14E earnings estimates by 7-9 per cent to reflect the obligations to the perpetual security holders. We maintain our 'sell' rating and our $1.47 target price, as the stock is trading at about 10.5 times 2012E EV/Ebitda multiple, roughly par to its Macau peers. We think the stock is expensive given the difference in growth profile between Singapore and Macau.
SELL