Frankly Speaking: An expensive Empire

This article first appeared in The Edge Malaysia Weekly, on October 18, 2021 - October 24, 2021.
Frankly Speaking: An expensive Empire
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Since 2019, Genting Malaysia Bhd (GenM) has pumped some US$374.4 million into Empire Resorts Inc, its New York-based entertainment, hospitality and gaming subsidiary. It has obtained no notable returns from its investments, as Empire Resorts, which owns and operates Resorts World Catskills (RWC), is loss-making.

Now, GenM is putting another US$150 million (RM623.6 million) into Empire Resorts. GenM holds a 49% stake in Empire Resorts whereas the private company of its ultimate shareholder, Kien Huat Realty, holds the remaining 51% stake. If the latest capital injection is taken into account, GenM’s investment in Empire Resorts is US$524.4 million and Kien Huat’s portion in the company is US$525 million.

Empire Resorts will utilise the funds to facilitate a long-term financing facility and to expand its business into the area of mobile sports betting. The business expansion relates to having a 1,300-video gaming machine facility with a lounge and bar, and a mobile sports betting licence that the authorities will decide on by year-end.

Like other casinos, Empire Resorts’ RWC operations were affected during the pandemic when it was closed for five months. GenM states that despite the poor market conditions, Empire Resorts managed to raise money for working capital and refinanced its debts of US$350 million in March this year.

According to GenM, RWC’s gross gaming revenue in the second quarter of this year was at 95% of the levels seen in the corresponding period in 2019 and the company achieved positive earnings before interest, taxes, depreciation and amortisation in the second quarter of this year.

Analysts seem to have a different view on GenM’s investment in Empire Resorts, though. They predict that the investments in the casino will continue to be a drag on GenM as it may continue to bleed for a few more years.

Although Empire Resorts is a subsidiary of GenM, if all the convertible instruments are converted at maturity in 2030, the latter would end up holding 60% of the former.

So, while having a casino near Manhattan looks good for the Genting group, it is an expensive foray and adds no value to GenM.

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