Genting raises $572 million from CB and placement

The deal comes as Genting International wins the bid for an integrated casino resort in Singapore. Separately, Champion attracts strong demand to Asia's first CB by a Reit issuer.
Only three days after winning the bid to build an integrated casino resort on SingaporeÆs Sentosa island, Genting International was in the capital markets last night raising funds towards the project. It was accompanied by its Malaysian parent which saw an opportunity to add to its war chest amid the positive sentiment surrounding the group.

And despite a surge in their respective share prices earlier in the day, investors were keen to participate. In fact, both deals were increased in size after being multiple times covered.

Parent company Genting Bhd was able to raise M$1.04 billion ($297 million) from a share placement, while Singapore-listed casino operating subsidiary, Genting International, issued S$425 million ($275 million) worth of convertible bonds.

The latter company is the one which obtained the Singapore casino license through a consortium with Hong Kong-listed Star Cruises, which is part of the same Malaysian group, and here investors know for sure that the money raised through the CB will go towards the $3.4 billion resort project which is expected to be operational by early 2010. The company has said that it intends to finance one-third of the investment cost through equity, while the remainder of the money will be obtained through project finance term loans.

The bond issue was jointly arranged by DBS, HSBC and Merrill Lynch, which were said to have been prepared to launch the deal immediately after the Singapore government announced the winners û if the company was chosen.

ôThe group certainly isn't wasting any time, which shows how serious and keen it is about this project,ö says one observer.

According to the term sheet, the money raised by the parent is to be used for general corporate purposes and investments made by subsidiaries, although sources close to the deal say investors bought into the placement with the belief that they will be able to reap the benefits of the new casino business. Genting Bhd, which is also active within the power generation, oil and gas, and palm oil industries, owns about 58.5% of Genting International.

Genting International offered S$350 million worth of five-year zero-coupon convertibles with a S$75 million upsize option that was exercised shortly after the terms had been finalised to make the most of what sources said amounted to S$1.5 billion of demand.

The order book included about 80 names, which represented a broad range of top-tier investment funds, many with prior investment experience in the US gaming sector. Deeming from the demand they had no problem with the fact that the CB was priced off a 24.1% rally in the share price yesterday and sources said this stemmed from the fact that the Singapore casino resort will transform the company into an international gaming play that has the potential of becoming a legitimate challenge to the US casino operator. (Genting International also operates casinos in Malaysia, Australia and the UK.)

ôThe Asian gaming sector is an incredibly interesting sector and it is totally under-represented in terms of market cap,ö notes one observer. ôAnd investors like the fact that this company has passed the checks of the Singapore government to win one of the most heavily contested licenses in Asia, which shows the government has faith in the management and the business strategy.ö

The bonds were priced with a conversion premium of 22.5% over MondayÆs close of S$0.515 after being offered to investors in a range of 20% to 25%. This gives an initial conversion price of S$0.63. The yield was fixed slightly below the mid-point of a 2.75% to 3.50% range at 3.00%, which represents a discount versus the Singapore five-year swap rate that is currently quoted at about 3.3%.

Given the long-term nature of the casino project, the issuer wanted no put option, but there is an issuer call after two years, subject to a 120% hurdle, to speed up the conversion into equity. Should the share price fail to perform, the conversion price can also be reset after three years, down to a floor of S$0.515, which is equal to MondayÆs close.

The underlying assumptions included a credit spread of 185 basis points over Singapore dollar swaps, a 5% stock borrow and a full dividend protection for three years and above a 1% dividend yield for years four and five.

This gave a bond floor of 89.71% and an implied volatility of 29.5%. Given the spike in the share price yesterday and some volatility in the week leading up to the Singapore government announcement the historic volatility has moved up, but before this recent activity the 100-day volt stood at 32-33%.

Meanwhile, Genting Bhd was able to increase the size of its equity placement to 33 million new shares after the initial offering of 30 million shares ended up about four times covered. Between 75 and 80 investors were said to have participated in the deal which is the largest follow-on offering out of Malaysia since 1997.

The deal accounted for just under 5% of the issued share capital and was completed in less than five hours by joint bookrunners CIMB, CLSA and UBS.

The price was fixed at the top of the offered range of M$30.50 to M$31.50 for a 1.6% discount to MondayÆs close of M$32l. One observer believed to be the tightest discount for a Malaysian placement ever, or certainly in a very long time.

While it didnÆt see quite as big a jump as its Singapore-listed subsidiary, Genting Bhd did add 9.4% yesterday, making the tight discount even more impressive.

Genting International is forecasting that its Resorts World at Sentosa, which will include six hotels with a total of 1,800 rooms, will see 15 million visitors in its first year of operation in 2010 and generate additional spending of S$10 billion. By 2015 the resort is expected to bring in tourism receipts of S$15 billion ($9.7 billion), accounting for half the target set by the Singapore Tourism Board for that year, the company said in a release issued Monday.

Also in the market yesterday was Champion Real Estate Investment Trust, which raised HK$765 million ($98.3 million) from the sale of convertible bonds with a 4.4-year maturity, while the stock was suspended from trading. The money will go towards the HK$994.6 million acquisition of three additional floors and three private car parking spaces in Citibank Plaza, which is the only property currently in its portfolio.

This is the first convertible bond issued by an Asian Reit and took some market watchers by surprise given that ChampionÆs share price has slumped 22.9% since its trading debut in May. However, bankers said this made the CB the perfect instrument for investors who wanted a cheap option on any future upside in the stock. With a bond floor of 96.5% over more than four years there certainly seems to be little downside. The bonds will also pay a 2% coupon.

According to sources, the CB was close to eight times covered with 80-90 investors participating, which allowed the yield to be fixed at the tight end of the 4.15% to 4.375% range. The bonds were offered with a fixed conversion premium of 18% over FridayÆs volume weighted average price of HK$3.9023. The stock closed at HK$3.93 on Friday, implying a 2006 dividend yield of 7.1%. It was suspended from trading yesterday.

The Champion bond was arranged by Citigroup, JPMorgan and Merrill Lynch which were also joint bookrunners for the IPO.
¬ Haymarket Media Limited. All rights reserved.