KUCHING: Genting Malaysia Bhd (Genting Malaysia) proposed to acquire the UK casino businesses (Genting UK) from sister company Genting Singapore PLC (Genting Singapore) for £340 million or RM1.7 billion in cash as it was the only company within the Genting group that had the financial resources to expand Genting UK.

According to a research report by ECM Libra Capital Sdn Bhd (ECM Libra), it revealed that the acquisition would be financed from Genting Malaysia’s existing net cash which it estimated would have otherwise swelled to RM6 billion by year-end.

Genting Malaysia would also assume £85.9 million or RM421.5 million of Genting UK’s net debt as at May 31, 2010. This, commented the research house, would bring Genting UK’s enterprise value to £425.9 million or RM2.1 billion.

The management had unveiled that only Genting Malaysia within the Genting group had the financial capability to expand this UK arm. However, ECM Libra begged to differ because as at December 31 2009, Genting Singapore’s cash balance stood at S$2.8 billion or RM6.4 billion and its net gearing was comfortable at 24 per cent.

ECM Libra predicted that the incremental financial year 2011 forecast net profit which it estimated at RM34.9 million would barely cover the interest income foregone of RM33.4 million based on a two per cent interest rate on the RM1.7 billion purchase consideration. Therefore, this acquisition was considered to be value destroying for Genting Malaysia without accreting earnings, highlighted the research report.

ECM Libra opined that apart from the Aqueduct Racetrack Video Lottery bid, Genting Malaysia had few other avenues to constructively utilise its net cash. It added that more than a quarter of the group’s net cash would be spent on this acquisition, which were barely earnings accretive.