Genting HK: Urgent Fresh Funds needed
September 18, 2020
The Pandemic has devastated the cruise industry across the board globally. The first to send a warning out in early May 2020 was Norwegian Cruise Lines (NCL) which announced that it may not survive the Coronavirus and it couldn’t guarantee that it could continue as a going concern. But it managed shortly thereafter to secure US$2.23billion funding from bond and equity investors “to cover over 12 months of voyage suspensions” according to Bloomberg. That was a big relief to NCL.
Carnival Corporation, the world’s largest cruise operator which owns Carnival CruiseLine, P&O Cruises, Princess Cruises, Seabourn Cruise line, Costa Cruises, Holland America Line, AIDA Cruises and Cunard Line said it is looking to raise US$6 billion in new funding via bonds and new share issues. It said in July 2020 that it will shed 13 cruise ships when it reported a second quarter loss of US$4.37 billion in the face of the pandemic.
Viking River Cruises is the world’s leading River Cruise Line, and Viking Ocean Cruises has also become the leader in small ship ocean cruising. Viking Expeditions from the Artic to the Antarctica will launch in 2022. The company has a fleet of more than 70 vessels. The coronavirus pandemic has led Viking Cruises to suspend all its scheduled cruises until 2021. Chairman Torstein Hagen said that Viking will only sail again when it is safe to do so. The Company is seeking US$600million funding to see it through the pandemic. According to The Wall Street Journal, the debt will be offered at a sky high interest rate.
Royal Caribbean Cruises Ltd ( best Cruise line in the Caribbean 17 years running) own the largest cruise ship in the world, Symphony of the Seas plus another 25 cruise ships. The company has secured a US$2.2 billion 364-day secured term loan facility which can be extended for another 364 days to bolster its liquidity at this time.
What about Genting Hong Kong?
Chairman and Group CEO of Genting Hong Kong (GentingHK), Tan Sri KT Lim must be doing his rounds to try and secure fresh funds to tie the company over for at least 12 months as what its top peers have done. They have secured lines of credit via bonds or equity issues. GentingHK needs to do that fairly quickly. As far as the GentingHK Cruise lines are concerned, the company is likely to be able to refinance, restructure its leasing payments or get fresh funds to keep them going till the tide turns. What is worrying is the cost of upkeep and loans related to the shipbuilding yards under MV Werften. Observers have asked – why did KT Lim venture into shipbuilding which is not a business the Genting Group is competent in? The default in repayment arose from the shipbuilding loans, not the Cruise Lines.
Why buy shipbuilding yards?
In 2015 GentingHk reported pre-tax profits of US$2,114.2million. In 2016 it reported a pre-tax loss of US$495.6 million. Why the steep decline? One major item was the “one -off reorganisation costs for shipyard operations.” The other was the “pre-operating costs” for the new Dream and Crystal Cruise ships. Let us first try to see what was in KT Lim’s mind when he decided to buy the 4 German shipyards. Lloyd Werft was purchased in September 2015 to build the collection of luxury river yachts for Crystal Cruises. The three shipyards in Stralsund, Wismar and Rostock, Germany was purchased to control the delivery timing and pricing uncertainties associated with the cruise ship order book cycle. Genting HK paid Nordic Yards EUR 230,6 million or about slightly over RM1billion for the 3 shipyards. But that was not all. The shipyards needed a lot more investment to do the things KT Lim wanted them to do. KT Lim told shareholders that the purchase was “to facilitate Genting Hong Kong’s ambitious fleet expansion plans,” and they will “deliver innovative and world class vessels for Genting Hong Kong’s portfolio of cruise brands for the next decade.” The 3 shipyards were renamed MV Werften and will focus on building large new ships.
KT Lim was a man in a hurry in 2015. In his early 60s then, he did not have the luxury of time to realise his ambitious plans for an industry he loved if he did not act immediately and fast. “I have had faith in the cruise business since the very beginning,” he said. KT Lim was totally upbeat about the growing Chinese market for cruises. His euphoria to capture a large chunk of that market of the rich Chinese bourgeosie wanting to go on cruise vacations was met with a deep frustration that he had not enough ships to do it. In a 2017 interview with China Daily Asia, KT Lim said this, “Delivery times by other shipyards are beyond 2025 so what it means is that if a company orders a ship today, its not going to get a delivery slot earlier than 2025. No business can survive on not having a product in the next 7 or 8 years.” He was not going to wait and he wanted the crème de la crème of luxury cruise ships and yachts for GentingHK custom designed if he had to buy shipyards to do it. And so he did. Was he wrong?
Time of reckoning
This is a time of reckoning for KT Lim. His father, Tan Sri Lim Goh Tong, the late founder of the Genting Group, had a time of reckoning too when he was halfway constructing a road up to the top of Gunung Ulu Kali in Pahang in the mid 1960s. What if he never made it to the top of the hill? Tan Sri Lim had a dream – to build a hill resort at the peak. Everyone thought he was unrealistic. After 18 months of toil and dangerous work in treacherous terrain, he reached the halfway mark. There he sat and looked up wondering perhaps he was wrong. As he looked at the panoramic views and felt the cool mountain air, his thoughts drifted back to his village in China and to his family home. Then he remembered what his father told him often enough when he was a young boy - “son, never give up halfway.” Parents sometimes never realise that what they say to their children comes back with great significance and relevance at a certain moment of reckoning in their lives. So Tan Sri Lim made it to the top and his dream came true.
What will KT Lim do in the current perilous scenario? How long can GentingHK bleed? As at 31 July 2020 GentingHK’s debts were US$3.37 billion.
(to be continued)
- Skift Take. 5 May 2020. Rosie Spinks. Norwegian Cruise Line indicates it may not survive the Virus Crisis. https://skift.com/2020/05/05/norwegian-cruise-line-indicates-it-may-not-survive-the-virus-crisis/
- Bloomberg. 6 May 2020. Jonathan Levine. Norwegian Cruise Says New Funding Means It Will Survive Crisis. https://www.bloomberg.com/news/articles/2020-05-06/norwegian-cruise-says-new-funding-means-it-will-survive-crisis
- Miami Herald. 10 July 2020. Taylor Dolven. Carnival Corp. to sell 13 ships, resume cruises in Germany amid COVID-19 pandemic. https://www.miamiherald.com/news/business/tourism-cruises/article244127877.html
- Forbes. 12 November 2019. Eric Rosen. The 2020 List Of The World’s Best Cruises Is Out Now. https://www.forbes.com/sites/ericrosen/2019/11/12/the-2020-list-of-the-worlds-best-cruises-is-out-now/#5c15fd001a40
- Mirror.13 August 2020. Rosaleen Fenton. Viking Cruises cancels sailings until 2021 due to coronavirus pandemic. https://www.mirror.co.uk/travel/cruises/breaking-viking-cruises-cancels-sailings-22513978
- The Wall Street Journal. 11 May 2020. Alexander Gladstone. Viking Cruises Seeks to Raise $600 Million. https://www.wsj.com/articles/viking-cruises-seeks-to-raise-600-million-11589215417
- Cision PR Newswire. 23 March 2020. Royal Caribbean Comments On New Financing Facility. https://www.prnewswire.com/news-releases/royal-caribbean-comments-on-new-financing-facility-301028303.html
- The Guardian. 31 March 2020. Carnival cruises seeks $6bn funding amid coronavirus fallout. https://www.theguardian.com/business/2020/mar/31/carnival-cruises-seeks-6bn-funding-amid-coronavirus-fallout
- Viking. About us. https://www.vikingcruises.com/about-us/history.html
- Royal Caribbean International. About us. https://www.royalcaribbean.com/caribbean-cruises
- The Straits Times. 31 August 2020. Genting Hong Kong gets interest from investors for cruise brand. https://www.straitstimes.com/business/companies-markets/genting-hong-kong-gets-interest-from-investors-for-cruise-brand
- Breaking Travel News. 13 July 2016. Genting Hong Kong to create MV Werften from German ship yards. https://www.breakingtravelnews.com/news/article/genting-hong-kong-to-create-mv-werften-from-german-ship-yards/
- Cruise Mapper. 2 March 2016. Genting HK Buys Three German Shipyards. https://www.cruisemapper.com/news/1021-genting-hk-buys-three-german-shipyards
- Cruise Mapper. 31 August 2020. Private investors interested in a GHK-Genting Hong Kong cruise brand. https://www.cruisemapper.com/news/7852-private-investors-interested-ghk-genting-hong-kong-cruise-brand
- China Daily Asia. 24 February 2017. Sophie He. Living up to the Malaysian Dream. https://www.chinadailyasia.com/leaders/2017-02/24/content_15576782.html