Several parties eyeing Tanjong’s gaming business

KUALA LUMPUR: Several international private equity firms and a consortium led by the Cheng family have expressed keen interest to acquire Tanjong Plc’s gaming business although the company controlled by T. Ananda Krishnan is still weighing its options on whether or not to divest the prized asset valued at some RM2.3bil to RM2.5bil.
Sources said many parties had approached the company directly and via banks to express their interest to acquire the gaming assets, although Tanjong had not decided on the divestment route just yet.
“The company was just taken private. It obviously wants to expand the power business. Monetising any of its other assets, including gaming, is contingent on Tanjong’s plan to expand its power business,” said an industry source.
The other assets up for sale in the post-privatisation of Tanjong includes the cinema operation and its German Tropical Islands.
The combined value of those businesses is believed to be about RM2.8bil, which would give a sizeable boost to the cash reserves for Tanjong to expand into power operations.
Although talk on any sale of Tanjong’s numbers forecast operations (NFO) and racing totalisator (RTO) is said to be preliminary, reports indicate that interested parties valued those assets at RM2bil.
If a sale of the business, where gaming is the prized asset bidders are looking at, cannot be struck, then the company should be more than willing to continue leaning onto the unencumbered cashflow from the gaming business.
While divestment is an option for Tanjong, another would be to tie up with some other gaming-related party by partially selling its interest in the gaming business.
“No decision has yet to be made and, as such, talk of Tanjong selling gaming at this point is totally speculative,” a source said.
While no deal has been struck, it is learnt that negotiations for the gaming business of Tanjong have been taking place for months.
“There is a small gap in the valuation between what is offered and asked,” another source said.
One of the main reasons for the sale of the gaming assets of Tanjong is that the presence of those activities within the group prohibits the entry of investors wanting a syariah-compliant business.
In its circular to shareholders, Tanjong indicated that it wanted to tap the Middle East and North African markets together with those in South and South-East Asia to expand the power-generation business.
Owing to this, Tanjong needs to change its corporate structure, which would entail the sale of assets, to facilitate the expansion.
Tanjong’s gaming business would include the NFO, Big Sweep and RTO. The National Stud Farm, which makes a small profit, would also be bundled into the lot.
Tanjong’s gaming arm, Pan Malaysian Pools Sdn Bhd, reportedly has about 24% share of the local market. Berjaya Sports Toto Bhd’s market share is about 40% while Magnum Corp Bhd’s is 36%.
While the NFO business is the cash cow in the gaming business stable, Tanjong has been losing money from its racing operations.
According to reports, the losses from the RTO business could reach up to RM80mil in the current financial year.
The losses arise from a number of causes. It is said that the Selangor Turf Club is profitable but not those in Penang and Perak. Furthermore, the RTO business is hamstrung by annual cash payments to each of the three turf clubs.
Industry watchers said the business, which has been modernised somewhat with the introduction of telephone betting, was lagging behind the illegal business which could source bets from punters through the Internet.
This has proved to be a lucrative avenue for illegal bookies who are said to make around four times what the turf clubs can pull in on any racing day.
Any potential bidder also had to find favour with the gaming industry regulators and a gameplan to deal with the illegal bookies, said an industry watcher.
Foreign bidders will probably not be penalised in the bidding process if they pair up with a local partner with knowledge of the industry. Multi-Purpose Holdings Bhd in a partnership with CVC Asia Pacific Ltd completed the privatisation of Magnum in 2008.