Genting Singapore has announced a 1 for 5 rights issue at subscription price of S$0.80 which could raise gross proceeds of cS$1.5bn-1.6bn. The company intends to use c60% of proceeds for future acquisitions/investments in leisure & gaming related sectors, and c40% for working capital purposes.

RWS remains fully funded with an S$4bn credit facility together with the original S$2bn equity funding from the 2007 rights issue. As of end H109, only S$1.6bn of the S$4bn had been drawn down. We do not expect any downstreaming of new equity funding into RWS from Genting Singapore. Pro forma, net debt to EBITDA would decline from 5.3x to 3.1x in 2010e, and from 4x to 2.3x in 2011e.

We believe strategically Genting Singapore may seek acquisition or investment opportunities in casino-related sectors outside of Singapore. However, we consider further investment in UK and new investment in the US as risky. Entry into Macau would be positive, but structural and regulatory issues remain difficult to overcome.

Since the subscription price of S$0.80 is only marginally lower than our current price target of S$0.82 and the increase in the share capital is only c20%, there would effectively be no change to our price target based purely on the terms of the rights issue transaction. However future investments may alter our fair value.