Asian casino operator pays price for UK voters' Brexit gamble

[SINGAPORE] Genting Malaysia Bhd, among the Asian companies most exposed to the UK, is finding some investors aren't prepared to take a chance on its foray into the country's gaming market after the surprise vote to leave the European Union.

Run by South-east Asia's biggest casino group, shares in Genting Malaysia slumped 4.4 per cent since the June 23 Brexit referendum while the nation's benchmark index gained 0.5 per cent.

Its parent's ringgit bonds due 2027 yielded 145 basis points more than the sovereign, up from 128 before Brexit and 1.7 timestheir one-year average.

With 43 casinos in the UK, Genting Malaysia ranks among the 10 Asia-Pacific companies most at risk to Britain's economic slowdown, Bloomberg data show.

Tata Motors Ltd, which makes Range Rover cars, and some companies linked to Hong Kong's richest man Li Ka-shing are among the biggest losers as their stocks and dollar-based debentures fell after the vote.

The historic referendum pushed investors into safe havens, with the amount of sovereign and investment-grade corporate bonds paying zero-to-negative yields doubling to US$10.3 trillion by July 11, according to Bloomberg indexes.

"Companies exposed to the pound in their earnings may see some pressure," said Wan Murezani Wan Mohamad, head of research at MNRB Holdings Bhd, a Kuala Lumpur-based reinsurer with 7 billion ringgit (S$2.38 billion) of assets. "The risk to earnings skews to the downside."

Katherine Chew, Genting Malaysia's spokeswoman in Kuala Lumpur, declined to comment on the Brexit impact.

The pound has weakened about 12 per cent to a 31-year low against the dollar since the vote, the worst performance among the world's major currencies, with more losses predicted. Nomura Holdings Inc sees a 1 per cent drop in earnings per share for Genting Malaysia in 2016 for every 10 per cent slide in the pound-ringgit rate, a June 27 report shows.

Genting Malaysia entered the UK market in October 2010 with the purchase of 46 casinos from a sister company Genting Singapore Plc for £351.5 million (S$627.5 million), including the Crockfords, Colony Club, Maxims and London Mint brands.

More recently, the six casinos in London and 37 in the regions helped contribute 24 per cent of the group revenue in the quarter ended March 31, up from 16.4 per cent in 2015, according to its financial reports.

"We see a dual negative impact from the results of the Brexit vote," Nomura wrote in the report on Genting Malaysia. "A weaker economic climate will likely result in slower business volumes, and will be further hurt by a weaker pound to ringgit translation."

With UK politics in disarray, the Bank of England has stepped in to boost liquidity and will hold its first post- Brexit interest-rate decision on July 14. Gauges of consumer sentiment and business confidence are plummeting.

Morgan Stanley recommended on June 29 that investors avoid dollar-based notes from Asian corporates which have more than 15 per cent of revenue tied to the UK and Europe's developed economies. Brexit would trigger a downturn, if not an outright recession, in the UK and Europe, the US bank said.

"Genting Malaysia's exposure to the UK is more concentrated" than regional peers, said Danny Wong Teck Meng, chief executive officer in Kuala Lumpur at Areca Capital Sdn Bhd, which manages 700 million ringgit of assets.

"There will be some indirect impact arising from Brexit, but it's not a huge concern for now for the UK casinos. Slower business volume would add more pressure in the longer term."

BLOOMBERG