Genting Malaysia Stock Plummets After Finance Minister Increases Casino Fees

Posted on: November 6, 2018, 09:55h. 

Last updated on: November 6, 2018, 09:55h.

Devin O'Connor @CasinoorgDevinO Read More
Expertise: Asia Pacific Gaming, Commercial Gaming, Legislation, Politics.

Genting Malaysia is in crisis mode after the gaming company’s home country announced a substantial tax increase on casino operations.

Genting Malaysia casino tax
Genting Malaysia Chairman Lim Kok Thay lost some of fortune this week after the company’s stock fell on increased tax news. (Image: Roslan Rahman/Getty)

Malaysian Finance Minister Lim Guan Eng shocked Genting shareholders late last week when he announced in his budget address that tariffs on gaming would be increasing by 10 percent. He added that annual fees for casino licenses would jump to 150 million ringgit ($36 million) from 120 million ringgit ($28.8 million).

While some sort of increase was expected, the hike far exceeded analyst forecasts. The general consensus was that Malaysia would increase its casino tax by five percent, and the annual renewal fee would remain relatively the same.

Genting owns and operates four integrated casino resorts in Malaysia. The company’s portfolio additionally includes dozens of casinos in the UK. It also owns the Resorts World properties found in the United States, Singapore, Philippines, and South Korea.

Tax Hike Cuts Into Revenues

Nomura Holdings, a Japanese financial services firm that specializes in gaming markets, is slashing its financial outlook for Genting Malaysia following the news.

We believe the 10 percent increase in gaming tax, along with other tax increases such as annual license fees, dealer licenses, etc., are extremely punitive, and diminish the investment appeal of the gaming sector,” Nomura analysts explained in a note Monday.

Nomura says the added 10 percent will cost Genting 600 million to 700 million ringgit ($144 million to $168 million) in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the 2019-2020 fiscal year.

The analysts concluded that the higher tax will “offset a big chunk of the earnings growth expected.” The result will see Genting post a decline in the fiscal year 2019, as compared to a previously forecasted 15 percent growth.

In the US, Genting is still trying to recoup more than $400 million it loaned a Native American tribe in Massachusetts to start building a $1 billion casino. Genting partnered with the Mashpee Wampanoag on its Taunton development, but after the US Department of the Interior blocked the project, Genting was left holding the bill for the failed resort.

Japan Impact

The Malaysian tax hike throws the fiscal health of Genting into jeopardy and could lengthen the company’s odds of landing one of the forthcoming integrated casino resort licenses in Japan. Like every other major casino operator in the world, Genting hopes to acquire one of the permits.

In April, Genting Group Chairman Lim Kok Thay said he expects a fierce bidding war, but believes his company’s vast experience operating in various countries positions it well for licensure.

Japan lawmakers want bidding casino operators to embrace its culture, and, according to the integrated resorts bill, come “with high morals, a sense of responsibility, and clean nature.”

Financial services firm Morningstar believes Las Vegas Sands and MGM Resorts are the two likeliest companies to receive initial licensure in Japan.