Genting announces rights issue

The Malaysian casino operator and hotel group announces a heavily discounted 5 for 3 rights issue.

Genting International has revealed plans for a renounceable rights issue of 2.365 billion new shares. Existing holders of every three shares will be entitled to buy five new shares at a price of US$0.13 each, a 43% discount to yesterday's (Tuesday) closing price of US$0.23 a share.

According to a company announcement, the exercise will see the company raise some $305 million after expenses, which will be put to use for acquisitions and general working capital.

Two existing shareholders have already made irrevocable undertakings to subscribe to the issue. Genting Overseas Holdings, which owns 64.28% of the company has agreed to pay US$197.7 million for its rights and Golden Hope has agreed to pay $34.4 million for its rights. Genting International is seeking underwriting for the remaining $75.4 million that it is looking to raise.

The company is incorporated in the Isle of Man and listed on the Luxembourg and Singapore exchanges. It is a 64.3% subsidiary of the parent company Genting Berhad, which is listed in Malaysia. Questions might be asked about why the company is using its international vehicle to raise funds when the bulk of the company's trading happens in its home market.

Shareholders will be given a chance to raise such doubts at an EGM the company plans to call, the date of which has yet to be announced. However, permission for the deal has been given in principle by the Luxembourg stock exchange and as a rights issue does not really dilute existing shareholders, the 43% discount should be enough to get the deal waved through..

The company is clearly hoping to capitalize on the global surge in gaming stocks, which are some of the hottest in the market right now. Sources in the market suggest that a surge in Genting's share price in recent weeks was due to rumours that it would soon be announcing plans to open a casino in Macau.

However, Genting has revealed no plans to do so yet, only revealing plans to increase its stake in Stanley Leisure of the UK from 2% to 9.1% and to form a 50:50 JV with the company for building regional casinos in the UK. This move comes after the recent relaxation of the UK's gambling laws.

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