GENS announced a 1-for-5 rights issue at S$0.80 each (32.8% discount to last done price of S$1.19) to raise S$1.63b to reduce debts and facilitate business expansion. This is expected to dilute 2010-11 EPS by 21.1%.

GENS has proposed a 1-for-5 renounceable rights issue of up to 2,043.7m new shares at S$0.80/share, a 32.8% discount to its last done price of S$1.19. This is the third rights issue since its IPO in 2005.

Rationale of rights issue. The rights issue is expected to raise gross proceeds of up to S$1.63b to strengthen its balance sheet (40%) and facilitate future acquisitions and investments (60%). No further details are provided on future acquisitions although we reckon that Genting Bhd (GENT MK) or Genting Malaysia (GENM MK) will be a better vehicle for this purpose.

Impact from rights issue. GENS’ 2010 and 2011 EPS are expected to be diluted by 21.1% after the rights issue. We now project gross debt to reduce to S$4.6b (previously S$5.22b) by end-10 (net debt/equity ratio of 85%).

We estimate a potential interest cost savings of S$20-30m per year which would raise our net profit forecasts marginally.