No negative implications behind the sale. Other than the sharp 16% discount to the previous day closing price of S$0.865, we do not think that there are any major negative implications behind the move. For one, reports suggest that the placement was made to close to 40 parties, including specialist gaming investors, long-only Asia funds and deal players who liked the big discount. As mentioned in our earlier report, the outlook for the gaming market in Asia remains very promising - industry watchers expect the market to grow by 15.7% CAGR for the next five years.
Lim family eyeing Mirage Macau asset? And the third reason for the stake sale could be related to talks that the Lim family is raising cash for a possible investment in MGM Mirage's Macau casino. Parent Genting Bhd and sister company Resorts World earlier bought a combined US$100m of secured notes sold by MGM Mirage. But given the link to Pansy Ho, the daughter of Stanley Ho, the investment could be quite a sensitive issue with authorities in Singapore. As such, we suspect the Genting group may not want to be directly involved.
Upgrade to HOLD. The news of the discounted share sale has resulted in GTGS's share price tumbling 17.9% yesterday to S$0.71. As the share price is now 6.6% below our recently revised fair value of S$0.76, we upgrade our rating to HOLD. However, the near-term outlook for GTGS has not improved - we are still expecting its UK operations to languish for the rest of this year. Although we continue to expect a net loss in FY10, the opening of Resorts World @ Sentosa in 1Q10 could prove to be a wild card. Nevertheless, we would be buyers closer to S$0.60 or so.
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