CIMB Investment Bank said it would not be surprised if the subscription was more than an interest-yielding exercise given recent press reports that the New Jersey Division of Gaming Enforcement has advised that MGM Mirage should be directed to disengage from its Macau joint venture (JV) partner Pansy Ho, who has a 50% stake in MGM Grand Macau.
“If complications in the MGM-Pansy Ho JV led to the departure of either party, Genting group’s subscription to the bonds would not hurt its chances of potentially filling the void. “We continue to believe that an eventual presence in Asia’s gaming hub of Macau would strengthen the group’s position as a formidable regional gaming player,” it noted.
Kenanga Investment Bank believes that MGM may potentially divest its stake in MGM Grand Macau under regulatory pressure. “Should MGM Grand Macau be up for sale as we postulated, it could offer Genting an excellent opportunity to immediately access the Macau gaming market without going through the lengthy asset building process,” it said in a note.
Project cost for the MGM Grand Macau was reported to be about us$ 1.3 billion. Kenanga pointed out that even if MGM demanded a premium on top of its 50% stake of us$ 0.7 billion, Genting would have no problem funding the acquisition through Resorts World Bhd, which was still sitting on a huge cash pile of us$ 1.3 billion as at December 31, 2008.
“We are neutral on the MGM notes purchase as the interest income is relatively insignificant despite the attractive rates. We are, however, more excited about the potential entry of Genting into the Macau gaming market. “The acquisition of MGM Grand Macau, if it materialises, could be a huge re-rating catalyst for both Genting and Resorts,” it said.
The notes were offered as part of a us$ 1.5 billion placement execrcise, the proceeds of which will be used by MGM to part settle its outstanding debts and for general corporate purposes. The notes are secured by a first-priority lien on substantially all the assets of the Bellagio Hotel and Casino and the Mirage Hotel and Casino in Las Vegas.