Investor displeasure over GenM RPTs

INVESTORS tend to dislike related-party transactions (RPT), so when Genting Malaysia Bhd (GenM) (3182) announced its latest RPTs - exactly a year after its last one sent the stock tumbling - more than a few eyebrows were raised.

This time, the casino-and-hotel operator plans to buy two firms which own properties in Kuala Lumpur - the 25-storey Wisma Genting and two parcels of land in Segambut - for RM228.6 million from its parent, Genting Bhd.

GenM, the cash cow of the Genting group, will end up paying RM284 million in total as it will also have to settle the two firms' debts to Genting. It will not need to get the go-ahead from shareholders or regulators for these purchases as the price does not exceed 5 per cent of its shareholder funds.

Given this, and in the spirit of good corporate governance, the onus should have been on GenM to provide enough information to assure its shareholders, especially minority ones, that the deal is fair and in the best interest of all. It needed to explain this well to shareholders as, otherwise, the deal might be seen simply as a convenient way to inject cash into the parent.
It, however, does not appear to have done a good job of this, going by the way shareholders reacted to the news in the stock market.

Despite analysts saying that the pricing was fair, the stock yesterday fell 2.1 per cent to RM2.78, while Genting slid 1.5 per cent to RM7.06.

A year ago, when GenM made a more controversial decision to pay RM250 million for loss-making start-up firm Walker Digital in another RPT, the stock lost almost 15 per cent of its market value over two days.

However, history has shown that RPTs are not always shunned by investors. Shares of Carlsberg Brewery Malaysia Bhd, for example, rose sharply for three straight days after it said in July that it wanted to buy a Singapore firm for RM370 million in an RPT.

Analysts said it had done a "superb" job at explaining why the deal was good. Three months later, shareholders gave the thumbs up for the deal to go through.

The Genting group, however, seems to have more explaining to do.

GenM's repeated RPT transactions have only served to raise more doubts over how it will use its sizeable cash balance of RM5.2 billion.

Keith Wee, an analyst at OSK Research, has cut his recommendation on GenM's stock to "neutral", partly because of concern that there could be more RPTs in the pipeline. Going by listing rules, GenM can undertake more RPTs of up to RM214 million over the next 12 months without getting shareholder approval, he noted.

So, unless the Genting group can step up and be more proactive in explaining how it intends to spend its cash pile to dividend-hungry shareholders, the fear of potentially more RPTs will continue to dampen sentiment on its stocks.