Dow Today – Genting Hong Kong Looks to Liquidation as Funding Dries Up
(Bloomberg) — Troubled cruise operator Genting Hong Kong Ltd. warned it may seek court assistance to safeguard its assets, after failing to secure funding to help it stay afloat following the insolvency of its German shipbuilding subsidiary.
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The cruise operator plans to file for provisional liquidation with courts in Bermuda, where its registered office is, unless it receives “credible proposals for a solvent, consensual and inter-conditional restructuring solution,” it said in an exchange filing. The company’s shares, down 49% already this year, have also been suspended from trade.
Genting Hong Kong’s indirect wholly-owned shipbuilding subsidiary, MV Werften, filed for insolvency in a local court in Germany last week. That came after salvage talks fizzled amid a dispute between German authorities and Genting, as both parties blamed the other for MV Werften’s collapse. The Hong Kong cruise firm warned investors that cross defaults amounting to $2.78 billion may follow.
According to MV Werften’s website, the shipbuilder has around 2,900 staff and over the past 75 years has delivered more than 2,500 vessels for deployment in the tourism sector, the Arctic region and the logistics and offshore marine industries from its shipyards in Wismar, Rostock and Stralsund.
The financial deterioration of Genting Hong Kong isn’t all Germany’s fault, however. Covid-19 has wiped out travel demand and at the start of the pandemic in early 2020, cruise operations globally were among the first to be halted.
That led the industry to carry out a string of restructuring and insolvencies. Genting Hong Kong, which like many operators has offered “seacations” amid a cruise-to-nowhere trend, reported a record loss of $1.7 billion in May. The latest liquidation developments come just as Hong Kong reimposes some of its strictest virus curbs since the pandemic began.
Exhausted All Efforts
Genting Hong Kong said on Tuesday that a German court had rejected an application that would have provided MV Werften with access to a $88 million lifeline.
“The company considers that it has exhausted all reasonable efforts to negotiate with the relevant counterparties under its financing arrangements,” it said in the statement.
“The appointment of provisional liquidators is essential and in the interests of the company, its shareholders and its creditors in order to maximize the chance of success of the financial restructuring and to provide a moratorium on claims and to seek to avoid a disorderly liquidation of the company by any of its creditors,” it added.
Some of Genting Hong Kong’s biggest creditors have included banks such as BNP Paribas SA, Oversea-Chinese Banking Corp. and Credit Agricole SA and DNB Bank ASA, data compiled by Bloomberg show.
The company’s impending demise may not necessarily have big ramifications for other companies in the Genting group. Part of Lim Kok Thay’s sprawling gambling-to-hospitality Genting empire, Genting Hong Kong was established in the early 1990s when the Malaysian tycoon wanted to diversify risk away from the flagship hilltop casino resort in his home country.
While Lim owns a 76% stake in Genting Hong Kong, the other Genting companies in Malaysia and Singapore — Genting Bhd., Genting Singapore Ltd. and Genting Malaysia Bhd. — have no cross shareholdings with Genting Hong Kong except for Lim being a common stakeholder in all four.
And cruises out of Hong Kong are only one part of Genting Hong Kong’s business. Responding to questions from Bloomberg News on Tuesday, the company said cruises were still taking place in Singapore, Taiwan and Penang in Malaysia, with most of those voyages having resumed at reduced capacity in 2020. The company wasn’t immediately able to disclose what proportion of its business cruises from Hong Kong typically account for.
Still, Genting’s financial woes come as the cruise industry as a whole faces fresh challenges brought on by surges in omicron infections. In recent days, Royal Carribean Cruises Ltd. has canceled multiple sailings, while its Celebrity Cruises line pushed out the resumption of some voyages to the end of April. Norwegian Cruise Line Holdings Ltd. canceled a Caribbean trip mid-voyage due to Covid.
Those challenges dim opportunities for any of the biggest operators to pick up Genting’s assets in the event of a fire sale.
Rebuilding Cash Flows
“It’s clear the Asian market is attractive to all these guys, but I struggle to see investors wanting to support a transaction,” said James Ainley, director of hotels and leisure at Citi Research. “Pursuing M&A isn’t high on the agenda right now when the priority for operators has to be on getting the ships back on the water and rebuilding operating cash flows.”
The biggest cruise operators, including Carnival and Royal Caribbean, have been able to raise enough liquidity to get through the worst of the pandemic, even if some may need additional financing. However a handful of smaller operators have filed for bankruptcy. Spanish cruise line Pullmantur, partly owned by Royal Caribbean, filed for bankruptcy in 2020, while Jalesh Cruises Mauritius Ltd. became the first operator in Asia to shut down the same year.
Separately on Tuesday, Genting Hong Kong said that Alan Smith, Ambrose Lam Wai Hon and Justin Tan have resigned as independent non-executive directors and as such have ceased to be members of the company’s audit, remuneration and nomination committees.
(Updates with context throughout.)
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