Wednesday, August 4, 2010

GENM "Friend-Friend" Deal

Call it friend-friend, brother-brother, sister-sister deal, there are definitely few questions asked for yet another RPT deal.

I just read The Edge last week issue which covers the latest Genting Malaysia (GENM) RPT deal. Okay, the author does mention about why making a big fuss out of this RPT deal. With several bad deals made over the years, I think you can pretty much understand its shareholders concern. After reading the article, I can sum up the rationale behind the deal - price and timing. According to GENM president and COO, Datuk Lee Choong Yan (not sure about his relationship with our Datuk Lee Chong Wei), they aren't just acquiring the 44 casinos licenses but also a property that has not been revalued for the seven or eight years. Wow, that's pretty long and if it is given to any Malaysian MD or CEO, he would have revalue it every year to show his briliance for acquiring a good asset if it is. And it couldn't be a better timing than now considering the global market is still recovering from the post 2008 trauma and the recent P-I-G-S drama. Datuk Lee stress, if they were to do it, it has to be done within a year and a half or so.

Grandpa Lee (he isn't that old anyway) also said "We have 40 years of expertise in this industry, it will be a terrible waste if we didn't move forward". Agree. The Malaysian market is pretty much saturated now not to mention the competition it is getting, they definitely will have to look elsewhere. BUT, that raises another question and it'll worries me if I'm the shareholder. Because it also means 40 years of blessing of monopoly, no competition and pretty much not too many worries on the home-soil operations. Genting UK will be a different story altogether. Are they able to deal with the way more intense competition? No disrespect, but try ask our Malaysian government to open up the auto industry, see how Proton goes.

Second question: RPT. Why would GENS sell its UK business if it is a good business? And from the words of Grandpa Lee, it does sound that GENM gets a good bargain from her sister. So they are telling GENS are so dump that they sell off their UK casinos "cheaply" to GENM? And all this happen under their mothers watch, Genting? Now, who is the one getting ripped off here?

All these activities do raise a third question of what is it gonna be like in the future if Genting UK does turn out to be a shitty asset. Lets assume, Genting UK is a piece of shit. Now we all know GENM has lots of cash. GENS is holding a piece of shit that it needs to get rid of. So today, GENM helps GENS by taking this piece of shit away from her. Will they pull off "you help me, I help you" stunt again in the future?

Only time will tell. Nevertheless, one can't deny Genting Malaysia superb ability to generate free cash on the local front and it is unlikely to change. Probably, I'll just wait and see.

Do check out aboi's coverage on Genting Malaysia Bhd which covers its fundamental and other information on its industry such as competition.

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