Inauguration of US President Biden could help Genting Malaysia realize US$426 million tribal casino investment: Maybank Research - IAG

Thursday 21st January 2021

This week's inauguration of Joe Biden as the 46th President of the United States could be good news for Genting Malaysia too, potentially paving the way for a resumption of construction on its stalled Massachusetts tribal casino project according to a Thursday note from Maybank IB Research.

Genting Malaysia had in April 2016 subscribed to interest-bearing promissory notes issued by the state's Mashpee Wampanoag Tribe in order to help finance construction of a new casino project, First Light Resort & Casino (FLRC). For its US$426.3 million investment, the company was to be paid interest of between 12% and 18% per annum as well as managing casino operations for at least seven years for 30% of EBIT.

However, Genting Malaysia was forced to write off its investment as an impairment loss in 2018 after the US Department of Interior (DOI) ruled the Mashpee Wampanoag Tribe could not develop its planned casino because it did not satisfy the conditions under the Indian Reorganization Act that allow the Tribe to have the land in trust for an integrated gaming resort development. Genting also forfeited around US$62 million per year in interest payments.

Biden, whose election campaign took a pro-Native American stance, could change all of that with Deb Haaland - one of the first Native American women ever voted to Congress - nominated to become Secretary of the DOI.

"In our view, the Mashpee Wampanoag [now] have a good chance of having their reservation land continue to be held in trust by the DOI," said Maybank IB Research analyst Samuel Yin Shao Yang on Thursday.

"This will allow the Mashpee Wampanoag to resume construction of FLRC. If their reservation land continues to be held in trust by the DOI and they are allowed to resume construction ... we gather that Genting Malaysia may write back the promissory notes it impaired in 3Q18.

"This will lift our SOP-based Target Price by 12% and FY22E Earnings Per Share (EPS) by 17%."

Yin only last week cut his Genting Malaysia EPS estimates for 2021 by 58% on a likely significant reduction in visitation following implementation of a new Movement Control Order (MCO) covering six Malaysian states.

A reversal of Genting Malaysia's impairment loss would help ease that pain, although there is still some way to go before FLRC becomes a reality.

"We understand that the Mashpee Wampanoag do not have sufficient cash to resume construction of the US$1 billion FLRC even if they were allowed to," said Yin.

"Our conversations with Genting Malaysia reveal that they may not subscribe for more Mashpee Wampanoag promissory notes until there is more clarity. Thus, the Mashpee Wampanoag may have to seek other sources of financing.

"Nonetheless, we opine that there is a chance that Genting Malaysia's Mashpee Wampanoag promissory notes may now be written back when there was none before."

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