Genting Pays US$100 Million For Stake In MGM Mirage

Reported on Business Times. Genting pays US$100m for MGM stake

• Malaysian gaming group Genting has paid US$100 million for a 3.2 per cent stake in US casino operator MGM Mirage, an official from the US company said today.
  
  The stake was offered under a US$1 billion equity placement by MGM Mirage last month. “We take this as a sign of great confidence in our company,” Alan Feldman, Senior Vice President of Public affairs for MGM Mirage told Reuters.
  
  Last month, Kuala Lumpur-based Genting and its unit Resorts World had subscribed for a combined US$100 million worth of notes issued by MGM Mirage.
  
  The notes were part of MGM’s US$1.5 billion fund-raising exercise to help settle its outstanding debts and for general corporate purposes.
  
  Malaysian analysts had said the investments could pave the way for Genting to acquire a stake in MGM or take over the US casino operator’s investment in MGM Grand Macau.
  
  By 9.59am, Genting had fallen 0.8 per cent to RM5.95 a share in a wider market that gained 0.3 per cent.- REUTERS

CIMB issued some comments.

• Takes a direct stake in MGM
  
  According to Financial Times, Genting Bhd has paid US$100m for a 3.2% stake in MGM Mirage (MGM US, Not Rated), matching the US$100m that Kirk Kerkorian, MGM’s largest shareholder, invested in the US gambling group’s US$1bn equity offering last month.
  
  Comments
  A positive development. Although we are slightly surprised by the timing, this development is positive as it is yet another proactive move by Genting to seal its relationship with the US gaming giant. To recap, on 21 May, Genting completed its subscription to US$50m (RM176m) senior secured notes issued by MGM Mirage. Back then, we conjectured that the Genting group’s subscription to the bonds would enhance its competitiveness as a potential business partner for MGM.
  
  A small stake but a promising start. The US$100m subscription represents only a 3.2% stake in MGM. Based on MGM’s issued share base of 441m, Genting effectively bought 14.3m shares at about US$7/share or a 2% discount over MGM’s last closing price. Although the stake is small, we view this as a stepping stone to a potential partnership between these two gaming players. Besides a strong presence in the US, MGM also has exposure to the Macau market via its 50:50 partnership with Pansy Ho.
  
  

Again.. I am surprised at why no mention that MGM itself is currently struggling?

I mean a bit more in depth research on MGM Mirage is not too difficult, yes?

A quick click, here and there, one could see that MGM is currently struggling big time. Massive losses were reported.

Earnings: http://www.marketwatch.com/investing/stock/mgm/financials

Balance sheet: http://www.marketwatch.com/investing/stock/mgm/financials/balance-sheet

Or as posted before onn Wednesday, March 04, 2009 MGM Mirage, Yet Another Casino Operator In Huge Trouble

• As of the end of September 2008, MGM Mirage had $13.29 billion in long-term debt.
  
  Many U.S. casino companies borrowed huge sums in the last few years to develop resorts in the United States and abroad. But several are having trouble making payments on that debt because their revenue has fallen sharply over the past year as fewer patrons spend less money on gambling and services.

Ok the price of US7/- per share does 'not' appear expensive when based on historical stock prices.

Ahem.. some would choke on such yardstick! :p2 ...

Anyway for what's it's worth.. have a look at the simple 5-year chart from marketwatch.

And of course, many would be QUICK to point out that MGM had recently rebounded extremely well from its 1.89 lows seen back in March 2009. And because the stock had already rebounded so well and so much, they would question the justification of US$7/- per share.




And some might be worried about MGM's stretched financials.