A hiccup in the development of a tribal casino in the United States is likely have a negative impact on the Genting Malaysia Bhd share price, according to Japanese brokerage Nomura. In a note published on Tuesday, Nomura said a legal interpretation by the U.S. federal government might prevent development of a tribal casino – that was due to be managed by Genting Malaysia – from going ahead. The U.S. government has decided the Mashpee Wampanoag Tribe cannot hold the land in trust, an arrangement that would otherwise allow the tribe to build a casino and reap the economic benefits.
The government decision issued late last week is a consequence of some doubt about the legal status of the tribe and the land it occupies. The Malaysian casino operator has proposed to run a US$1-billion casino (pictured in an artist’s rendering) on land belonging to the native American tribe in the state of Massachusetts. Nomura had said in previous commentary that Genting Malaysia was to manage the casino for at least seven years from the opening of the property. The casino operator had stated that while it had no equity interest in the project, it had invested in interest-bearing promissory notes issued by the Mashpee Wampanoag Tribal Gaming Authority for the initial development phase of the casino resort.
Nomura’s Tuesday note on the latest federal government announcement stated: “This lowers the probability of the tribe successfully developing a casino, and is negative for Genting Malaysia, which has invested about US$400 million cumulatively in the tribe’s promissory notes.” The stockbroker’s analysts Tushar Mohata and Rahul Dohare wrote that a casino on the tribe’s land would require the federal congress to pass legislation it is now considering which would allow the land to be held in trust. On Monday, the Washington Times newspaper reported that U.S. Senator Elizabeth Warren had criticised the federal government decision and promised to press ahead with the legislation that would get around it.
Nomura had previously flagged its doubts about the earnings estimates for Genting Malaysia this year. In March, Nomura reduced its estimates for earnings before interest, taxation, depreciation and amortisation on the strength of delays to work on its flagship resort in Malaysia, including the 20th Century Fox World Malaysia theme park – the latter an ongoing issue – and uncertainty over the U.S. tribal development. In its latest memo, Nomura kept its “buy” rating and its target price of MYR6.50 (US$1.57) for Genting Malaysia’s stock, which is listed on the Bursa Malaysia in Kuala Lumpur, Malaysia’s capital.
