How Genting Hong Kong founder turned Cruise operator into gambling company

230
5
How Genting Hong Kong founder turned Cruise operator into gambling company

In Hong Kong in 1990, Lim Kok Thay started a cruise ferry and gambling boat business and turned it into one of Asia's biggest cruise operators.

It was a labor of love, as well as a way to diversify the casino business set up by his father, Lim Goh Tong, in Malaysia. Genting Hong Kong Ltd. expanded its fleet of ships, bought other cruise lines, and added a string of German shipyards to build its vessels under the now 70-year-old Kok Thay.

More than two years into the coronaviruses epidemic, Kok Thay s company is headed for liquidation. Genting Hong Kong filed a petition last week to wind up its business in one of the biggest stumbles of a cruise operator since the pathogen pummeled the industry. It is a good example of how the coronavirus has brought businesses to their knees, and has the potential to affect cruise customers across the region.

When I heard the news, I felt so upset, said Chloe Then Sheau Nyuk, who used to board the company's cruises in Penang in Malaysia and travel to Phuket and Krabi in Thailand. She said that one of the things she most enjoyed was waking up with her husband at 6 a.m. to catch the sunrise from the upper deck.

Kok Thay founded the company that would become Genting Hong Kong in 1993, buying ferries from a bankrupt cruise firm to operate under the Star Cruises brand. Its first ships were all second-hand, and it only began purchasing new ones during the Asian Financial Crisis in the late 1990s.

Over the years, Genting Hong Kong expanded its business beyond Star Cruises, partly by acquiring other cruise lines. It bought the Crystal Cruises brand in the U.S. and set up the high-end Dream Cruises in Asia.

It was a time when the giants of the cruise world, such as Carnival Corp., prospered as the sector continued to set new records for people traveling.

In 2015, the company also snapped up several shipyards in Germany to build its own vessels.

But as the Pandemic forced cruise companies to halt operations, Kok Thay s long-term bet on the industry began to unravel, and the prospect of growing demand from China and the rest of Asia began to unravel. The company reported a record loss of $1.7 billion in May, despite the fact that it offered seacations as part of a broader trend of cruises to nowhere. Its wholly owned shipbuilding subsidiary, MV Werften, filed for insolvency in a local court in Germany earlier this month.

Last week, Genting Hong Kong, which is 76% owned by Kok Thay, filed a petition in Bermuda to wind up the company and appoint provisional liquidators. It said it had no access to further funding and it was expected to run out around the end of January.

The firm exhausted all reasonable efforts to negotiate with its creditors and stakeholders, as stated in a statement to the Hong Kong exchange. Hong Kong's shares had plunged more than 60% from a November high before they were suspended on January 18.

Bookings are still available on Genting Hong Kong's website for cruises to nowhere from Hong Kong and Singapore. Dream Cruises sailings that have already been scheduled will proceed, according to a company representative.

Other cruise operators, such as Carnival and Royal Caribbean Cruises Ltd., are rebounding as markets such as the U.S. the Americas and Europe are now living with the disease. Even though Kok Thay has been dealt a blow in the cruise business, it is just one part of his sprawling group which his father started with the hilltop casino resort now called Resorts World Genting more than an hour by car outside Kuala Lumpur. It is the only licensed casino resort in a Muslim-majority country that frowns on gambling.

Kok Thay, who keeps a low profile, and his father worked to expand and diversify the business beyond Malaysia, making it one of the largest gaming and entertainment conglomerates in the world. Genting operates casino resorts in the U.K. Singapore and the U.S., where the $4.3 billion Resorts World Las Vegas opened in June.

His father, who was born in China and moved to Malaysia when it was still a British colony, passed away in 2007 after a short illness. Kok Thay had already taken over the helm of the group just over four years ago.

One question is whether Kok Thay will try to bail out Genting Hong Kong with help from other group companies. Genting Malaysia Bhd is a sister firm. The country's casino has invested in Genting Hong Kong before, more than two decades ago. In 2016 it sold its 17% stake for $415 million.

Analysts believe that Genting Hong Kong's woes won't derail Kok Thay's ambitions for the Genting group.

Genting Malaysia, which bought the Equanimity superyacht seized by Malaysia s government from the fugitive financier Jho Low for $126 million in 2019, is gearing up to open a new $800 million outdoor theme park in the country. Genting Singapore Ltd. is preparing for a $4.5 billion expansion of its Resorts World Sentosa, one of the largest casino resorts in Southeast Asia.

None of the companies has cross-shareholdings with Genting Hong Kong except for Kok Thay owning shares in each of them.

Samuel Yin Shao Yang, an analyst at Maybank Investment Bank Bhd, said that the expansion plans of the other Genting companies should not be negatively impacted. He said that the debts at each company are ringfenced.

According to Jaime Katz, senior equity analyst at Morningstar Inc., Hong Kong's troubles may help competitors focus more on the Asia cruise market.

But Rick Munarriz, a contributing analyst at the Motley Fool, said he expects more cruise companies to follow the same path.

Genting Hong Kong won't be the last cruise operator to run out of money, he said. Creditors and stakeholders are tired of throwing good money after bad.