Genting Shares Tumble Most Since 1998 on Rights Issue Plan

Genting Bhd shares plummeted to their lowest level in 28 years following the announcement of a renounceable rights issue, which aims to raise approximately RM1.25 billion (US$306 million). The stock plummeted by up to 17% to RM1.56, marking the most significant decline since 1998. Genting revealed that the issue price would be set at a discount ranging from 25% to 30%.

The funds raised through this rights issue will be utilized to repay existing borrowings and bolster working capital. The company disclosed this plan amid a backdrop of mounting debt and declining profitability. In August, Genting reported a second-quarter net loss, and total borrowings had surged to RM45.3 billion by the end of June.

Analyst Samuel Yin from Maybank Investment Bank highlighted that the proposed rights issue would not only result in minimal interest savings and debt reduction, but also substantial dilution in earnings per share and book value per share. Furthermore, Yin expressed concern that Genting may need to resort to further equity fundraising or reduce dividends in the future, leading him to downgrade the stock from a "buy" recommendation to "sell."

The impact of the rights issue was particularly pronounced for Genting Malaysia Bhd, which experienced a decline of up to 8.1% - the steepest drop in over a year. Fitch Ratings echoed these concerns by downgrading Genting to a BBB- rating in September, citing expectations of a slower pace of debt reduction due to significant capital expenditure required to expand key properties in Singapore and New York.

Notably, Genting's Resorts World recently secured a license to operate a casino in New York City, a development expected to generate billions of dollars in revenue.