SINGAPORE (Feb 4): Genting Singapore has won overwhelming approval from shareholders to spend up to US$10 billion to invest in a possible new project in Japan. 

The integrated resort operator has also reiterated that if it wins the project, funding will come from existing cash, borrowings, and potential local partners. Genting Singapore will not tap existing shareholders to fund the project.

Genting Singapore has also stated its “target” to maintain its dividend payout, which was 3.5 cents for both FY2018 and FY2017.

The company has been prepping for the possible IR in Japan for years. It might answer ‘request for proposals’ to be put out by Osaka and Yokohama. It has yet to decide which location it will bid for.

Genting Singapore is drawn by the large local population in Japan, as well as the growing number of tourists to the country. 

The company has flagged that Japan’s gaming market – which includes horseracing, pachinko parlours – is between US$20 and $30 billion a year.

In contrast, earnings from Resorts World Sentosa, which is operated by Genting Singapore, while profitable, has limited opportunities for “very significant” growth, said president and COO Tan Hee Teck at the company’s EGM on Feb 4.

For the 3Q ended Sept 30 2019, the company reported a 24% y-o-y drop in earnings to $158.9 million. Revenue in the same period was down 7% y-oy to $596 million.

“We need to venture forward, we need also geographical diversification. We need to reduce Singapore country risk, and help us be more efficient using our capital,” said Tan.

Under SGX rules, companies need to seek shareholders’ approval if they want to embark on projects with a value bigger than their market capitalisation. The company is ready to commit up to US$10 billion, versus its current market value of just over $10 billion.

Just to be sure, even if Genting Singapore wins the right to develop an IR in Japan, the returns to the bottomline will be over the medium term. 

Construction might be able to start only in the second half of 2021 and because of labour shortage and other factors, take between six and seven years – twice the time needed to build RWS.

The company is able to manage return on invested capital of 21% in Singapore, higher than Macau’s industry average of 14%, albeit because of higher tax rates. Tan, in response to shareholders’ questions, estimate that Japan can give a return in between this range.

At the EGM, some shareholders urged the company to take into account longer term environmental risk of Japan, such as rising sea levels.

Not all shareholders are happy that Genting Singapore plans to pay non-independent directors a special incentive of 500,000 shares each, which was tabled as the second resolution of the meeting.
While 99.94% of the shareholders voted in favour of the first resolution to go ahead with the Japan bid, 15.24% voted against the incentive scheme for directors.