Genting Berhad is a company with a 45-year history and business dimensions unequaled in the gaming industry. After all, besides casinos, what other gaming company has been involved in such diverse activities as genome research, oil palm plantations, oil and gas exploration, power plants, paper production, real estate development and cruise ships?
And, there is more, much more. Despite this amazing past, a seminal event that will shape Genting’s future is about to occur-the opening of Resorts World Sentosa in Singapore, a mega-mixed-use casino-resort destination.
There may be no other company in the gaming industry as fascinating or with the future of Genting. This is its story.
Bill Harrah, Benny Binion, Sol Kerzner, Sam Boyd, Steve Wynn and Tan Sri Lim Goh Tong… All of these are patriarchs of start-up companies catalyzed by a spot-on vision for what consumers needed and wanted, but what the industry was not providing. These visions were all executed by the inner force of personality of their leaders, a requisite needed to overcome the challenges to initially succeed and then to continue to accelerate growth in the complex, competitive and capital-intensive gaming industry.
While historically not a household name in the Western gaming industry, the Chinese-Malaysian founder of Genting, Tan Sri Lim Goh Tong, deserves to be in this company-and, one might also say, vice versa. (Note that Tan Sri is a rare Malaysian honorary title bestowed upon him. Lim is the family surname, appearing first in the Chinese tradition, and Goh Tong are the given names that follow.)
The force Lim embedded in Genting can be well understood when one understands the forces that shaped the life of its founder. Upon his father’s death he was forced, at the age of 16, to leave Fujian Province in China and emigrate to Malaysia with nothing but a suitcase and $175. Tragically, soon after he arrived in Malaysia, the Japanese occupied the country, found Lim, and sent him back to China. Ironically but tragically again, Japan occupied Fujian Province, forcing Lim to once more return to Malaysia.
Once settled in Malaysia, Lim began his business career as an engineering contractor. As fate would have it, while working on an engineering project he visited Cameron Highlands, a mountaintop resort made popular by British colonists seeking to escape the heat in the cities below. Lim decided that he, too, wanted to build a retreat for his family and other Malaysians, but one that was closer to the population center of Kuala Lumpur.
In searching for a site, he found what he was looking for only 36 miles away and 5,900 feet above sea level. But, in what elusively seems to differentiate true visionaries from wannabes, Lim saw the potential to build a full-scale resort.
To secure the site from the government, Lim was forced to build a road to the almost 15,000-acre site with his own money.
In a twist of fate, this proved fortuitous, because Lim completed the construction of the road on time. As the thankful prime minister of Malaysia was helping to lay the first cornerstone, he surprised Lim by offering to give him a country-wide monopoly license for a casino that still exists today. While this may not have been initially seen as a great boon, because Malaysia is a Muslim-majority country whose religion forbids gaming, Malaysia also has a large and wealthy Chinese community with no such restrictions. And, little did anyone know, through Lim’s vision and drive, the initial inauspicious 200-room resort that opened in 1971 with a 30-table casino would morph into one of the largest and most prestigious resort, gaming, entertainment and meeting/convention destinations in Asia by the end of the century. The casino would cater to Chinese-Malaysians and foreign tourists, and the non-gaming activities would appeal to everyone, including non-gaming Muslim Malaysians.
The original Highlands Hotel is now known as Resorts World Genting, and offers some 500 table games and 3,000 slot machines; six hotels with 10,000 hotel rooms; some 30 restaurants and bars offering everything from lattes to haute cuisine; over 50 thrill rides contained in both outdoor and indoor theme and water parks; a Snow World, climbing wall, cineplex, Ripley’s Believe It Or Not Museum and bowling alley; 170 dining and shopping outlets; an array of entertainment venues that include a showroom, arena, hall, convention center and a number of informal venues; 150,000 square feet of business convention facilities; a 6,117-meter, par-71 golf course; a gym, a spa, and too many other activities and events to count.
The resort often first appears to newcomers as an apparition-castle-like hotels peeking through early morning clouds. It is other-worldly, unexpectedly impressive, and gets your heart pumping faster with anticipation before you even fully arrive. As testimony to Genting’s ability to understand the needs and wants of its target markets, Resorts World Genting hosted almost 20 million visitors in 2007.
Less known but also influential in the gaming industry have been Genting’s gaming development and management agreements in Australia, the Philippines and the Bahamas; stakes taken in Canada’s Pacific Lottery Corporation; United Kingdom’s Rank PLC and London Clubs International; and start-up funding of Foxwoods in Connecticut and the Seneca casino in Buffalo, New York. Genting’s diversification outside of gaming started in 1976 and continues to this day (see sidebar, page 26).
Lim retired in 2004 and died in 2007. However, the bloodline’s vision and vigor continued seamlessly and steadfastly with the stewardship of the company by his son, Tan Sri Lim Kok Thay, as events after 2004 demonstrate-and as the impending opening of Resorts World Sentosa will decidedly reinforce.
A Seminal Event
The dramatic changes in casino development over the last 30 years have gone from seven-figure to 10-figure investments, and from single-billion to multiple-billion-dollar projects. And nobody blinked. Resorts World Sentosa is approximately a US$4.5 billion project. It is a mega if not a meta project.
To place the project into scale, the site encompasses approximately 121 acres, about four holes short of what it takes to accommodate an average golf course. It will take somewhere in the neighborhood of 10,000 employees to operate the mega-resort when fully open. The list of activities reads like a list of leisure, entertainment and recreation activities for a major destination with multiple resorts, not a single project. (See Resorts World Sentosa sidebar, page 30.)
Resorts World architects and designers have developed a clever master plan, and emotion-evoking architecture and design that will complement and amplify employee-generated “This Trip Experiences” and create visual memory glue for years to come. Indeed, Resorts World Sentosa is the next new must-see gaming, leisure and entertainment destination.
In one bold move, Resorts World Sentosa propels Genting from being essentially a one-project, Malaysian gaming operator with some “other” gaming operations thrown in to being a two mega/meta-project, gaming-centric operator with combined investment equivalent to 12 or more typical gaming operations of its peers.
Often historically under-noticed and under-appreciated by most Westerners, Genting will soon become too big a competitor to ignore-in Asia or, for that matter, anywhere else in the world. Long overdue but overdue no longer. And, the industry is the better for it.
Even if Resorts World Sentosa is indeed the absolutely, unequivocally, stunningly world-class resort it strives to be, in capitalism, winning design awards or even moving the emotions of the purchasing public means little unless such actions achieve target financial results.
This is problematic because Resorts World Sentosa was conceived in broad strokes by the government of Singapore and then dialed in and detailed by Genting prior to the onset of the current economic crisis.
The government chose to issue only two casino licenses as the carrot to require each winning bidder to conceptualize and build a world-class, iconic integrated resort. The objective was to recover Singapore’s slippage as one of Asia’s top visitor destinations and, specifically, to increase visitor count from 10 million to 15 million by 2015.
These goals implicitly raised the ante of the casino license, but when combined with the bidding frenzy, they led to the submittal of the two intended iconic resort proposals (albeit at a very high level of investment). Post-bid, the investment went higher still, as the costs to execute the dramatic designs were realized, the concepts were fine-tuned, and construction encountered some unexpected increased costs.
No one would probably have said much had the world and regional economies continued to march forward at pace. They did not. And now this project and, for that matter, every other project around the world of this magnitude that began construction pre-economic crisis, is being met by the headwind of the direct and indirect effects of this crisis. Birthed in an era of bigger-is-better, build-it-and-they-will-come mentality, we may not see projects like this again for some time to come.
So, what is or should be the desired result for Resorts World Sentosa? Mere company survival is a significant accomplishment these days for any development of this size. Being able to pay down debt without triggering debt covenants is another.
On the equity side, it may simply mean having a stock price finally hit bottom and start to show signs of recovery. Taking it up a notch, returns on invested capital that provide some spread, any spread over cost of capital that would not have been considered inspired performance before the economic crisis (e.g., EBITDA return on invested capital or ROIC of 12 percent to 13 percent) but in 2010 will be welcome by many.
For projects of this size in today’s economy, mid-teen ROIC during a start-up period would be cause for applause. And, long-term prospects of a high-teen ROIC for a mega-project such as this today would make most investors giddy. In short, for the time being, the efficacy of Resorts World Sentosa should be evaluated based upon recalibrated expectations.
Even so, given all of the uncertainty that exists within the marketplace today, can the financial performance of Resorts World Sentosa fit into a lowered but tighter and realistic financial performance expectation matrix? The answer is a definite “yes” over the long term, up to and including the possibility of performance returning to the high end of the performance envelope.
It is a highly probable “yes” over the immediate term based upon recalibrated expectations. The initial opening period is less certain given the uncertainty of world and regional economies. Certainly a “yes” answer is a likelihood, but if a material threat or combination of threats conspire unexpectedly, it could also be a temporary “no” until Genting can fix it. Speculation aside, the actual outcome will be a function of the following Singapore and Resorts World Sentosa dynamics.
Here is what some of the analysts are saying. Their fully open and stabilized forecasts of total gaming revenue for both Singapore casinos seem to cluster in the mid-US$2 billion to US$4 billion range, although some are saying the upside market potential could be as high as US$6 billion with an outlier of US$9 billion.
Splits between the two licensees seem to range from an even 50:50 split to 55:45 tipped in favor of Marina Bay Sands, because of a perceived more favorable location, presumed positioning toward the upper end of the market and more serious gambler, and less focus on family and other less gaming-synergistic amenities. The results for 2010 vary from here based on when a given analyst feels each property will open, what activities will be available in Phase 1 (the Singapore government imposed a 50 percent “readiness” quotient to open the casino), and how quickly the remaining activities will build out.
The bulls of Genting Singapore stock, the subsidiary where Genting holds Resorts World Singapore, tend to justify their “buy” recommendations by gravitating toward the high end of Singapore market forecast and/or use the high end of Asian gaming stock price/earning ratios to get to a stock price with enough upside over the recent trading range of US$0.75 (S$1.00 to S$1.10) per share.
This translates into Singapore market annual gaming revenue in the US$4 billion range and/or P/E ratios of 15 times or more. The bears argue for less. There are many sub-arguments in between the major assumptions.
Stepping away from the analysts’ recommendations, using easy math and some generally accepted industry metrics, to achieve a 15 percent EBITDA return on invested capital on the US$4.5 billion investment in Resorts World Singapore requires an EBITDA of US$675 million. Assuming an EBITDA margin of 26 percent, this implies $2.6 billion in annual total revenue. Continuing with an assumed ratio of annual gross gaming revenue to total revenue of 70 percent, this results in a target annual gross gaming revenue of approximately $1.8 billion.
If Resorts World Sentosa produces 50 percent of Singapore’s combined gaming revenue, then the annual combined Singapore gross gaming revenue would need to be in the US$3.6 billion range in a 50:50 split with Marina Bay Sands and in the US$4.0 billion range in a 55:45 split with Marina Bay Sands.
Notwithstanding financial performance, there will be an underlying strategic value to opening a mega-integrated resort in Singapore. This includes not only marketing synergies with Genting’s other gaming operations-Resorts World Genting, Star Cruises, and its other international casino operations-but also the boost such a prestigious project operating in the squeaky-clean environment of Singapore will mean to Genting when bidding on what is certain to be a rekindled interest in new and expanded gaming venues throughout Asia and beyond-e.g., Japan, Taiwan, Thailand, Philippines and someday, perhaps mainland China.
No matter what third parties say, the initial high performance at Resorts World Sentosa is not a company life-or-death issue for Genting. The company is large, diversified and sitting on a fair amount of cash. In terms of risk management, the company has not overly leveraged the Sentosa project, is taking a phased approach, and has unspoken-for land yet to develop. And, as already mentioned, its executives are seasoned in gaming, operating and marketing in this specific region, and adept at working through challenges.
As this article was going to press, Genting announced that it planned to open the Crockfords Tower, Hotel Michael and Hard Rock Hotel on January 20, translating into 1,350 available rooms and 10 restaurants. The casino opening is predicated upon Resorts World Sentosa receiving approval to open Universal Studios Singapore. This is expected early in 2010. Opening of the remaining facilities will take place in 2011.
Genting can be proud in winning one of the two Singapore casino licenses, and even more proud of what its development team has conceptualized and executed, a truly stunning project. The “bones” are there. So are the inspiration, creativity, innovation and passion.
Under the careful stewardship of Genting, Resorts World Sentosa will be a great, memorable and emotion-evoking place to gamble, dine, imbibe, attend a meeting, shop, play with your kids (and be a kid yourself!), vegetate, cogitate, relax and just plain visit. Slow or fast, but inevitably, Resorts World Sentosa will fulfill its purpose for all of its stakeholders.
It would be unreasonable to ask for more or assume less.