KUALA LUMPUR: Genting Bhd's proposed RM1.25 billion rights issue is expected to lower debt and financing costs, but potential earnings dilution and an uncertain operating outlook remain key concerns, said Public Investment Bank Bhd (PublicInvest).
PublicInvest said RM800 million, or 64 per cent of the proceeds, would be used to repay debt, while RM429.5 million, or 34.4 per cent, would fund working capital. The remaining RM20.5 million would cover expenses related to the rights issue, which is targeted for completion by the first quarter of financial year 2027 (1QFY27).
Genting's major shareholders, who collectively hold a 45.1 per cent stake, are expected to subscribe to their entitlements in full.
"Genting is expected to achieve potential interest savings of RM41.3 million per year following the repayment. The rights shares will be issued at a 25 per cent to 30 per cent discount to its five-day volume-weighted average price preceding the price-fixing date, while the entitlement ratio has yet to be determined," it said in a research note.
PublicInvest maintained its "Neutral" rating on Genting, citing limited earnings visibility, while setting a target price of RM2 after applying a 15 per cent holding company discount.
Based on an illustrative issue price of RM1.30 per share and an entitlement ratio of one rights share for every four existing shares, PublicInvest estimated that the exercise would dilute earnings per share (EPS).
The research house said the interest savings could lift Genting's earnings by 5.4 per cent and 4.2 per cent for FY27 and FY28, respectively.
However, the rights issue could dilute EPS by an estimated 16 per cent and 17 per cent for FY27 and FY28, respectively.
Dividends per share could also decline by about 20 per cent, while the group's gearing ratio is expected to ease marginally to 0.46 times from 0.47 times.
PublicInvest viewed the rights issue as a more sensible funding avenue amid diminishing debt headroom and rising financing costs.
It said Genting's substantial capital commitments, particularly for Resorts World New York City in the US and Resorts World Sentosa in Singapore, would require additional funding.
"We also believe that the recent downgrade by Fitch Ratings in September and earlier cuts by Moody's and S&P Global Ratings had increased its funding costs, thus making the cash call a more sensible way to raise funds," it said.
Higher US dollar financing costs could add further pressure, making the rights issue a more cost-effective alternative to raising additional debt.
Genting can vary the allocation of proceeds between debt repayment and working capital by up to 25 per cent for the stated purposes without seeking additional shareholder approval.
This flexibility could allow the group to allocate up to RM1.1 billion towards debt repayment by reducing the amount earmarked for working capital, or vice versa.
PublicInvest said prolonged geopolitical tensions, slowing economic activity and inflationary pressures could weigh on the global hospitality and entertainment industries.
Operating costs are also expected to rise in the second half of 2026, reflecting the secondary effects of higher energy prices.
"We do not expect the US operations to deliver higher earnings in the immediate term, in view of the weakening job market and consumer confidence.
"Among the business segments, Genting Plantations Bhd might be the bright spot due to strong crude palm oil prices, thus creating a buffer for the broader group," it said.
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