Genting unlocks value of life science division via potential listing of SPAC

KUALA LUMPUR (Jan 10): Few may pay much attention to Genting Bhd’s life-sciences division. However, the biotech unit could be reaping its fruits via listing, after it merges with NASDAQ-listed GX Acquisition Corp to form a special purpose acquisition company (SPAC) in an attempt to create a publicly-listed leader in allogeneic cellular therapy.

This would also represent the first major monetisation in Genting’s life-sciences division.

On Friday, Celularity signed a definitive merger agreement with GX Acquisition Corp, of which the companies are planning to take it public by the second quarter of 2021, subject to approval of both Celularity and GX’s shareholders.

“While it is not clear what Genting’s current or ultimate stake in Celularity will be post-merger and listing, hypothetically, every 10% stake in a US$1.7 billion market cap listed entity is worth US$170 million, which is about 4.3% of Genting’s current market cap of US$3.9 billion,” according to Nomura Global Market Research, in a note today.

Thus, if Genting ultimately owns 20% to 30% of Celularity, it will add about 8.6% to 13% to the current market cap or valuation, before any holding company discount, said Nomura’s analysts Tushar Mohata and Alpa Aggarwal.

This value can go up in the future, post successful trials and launches of Celularity’s drugs, the analysts added.

Genting had invested in Celularity along with other investors in a February 2018 series A-II funding round, which totalled US$250 million. While it is unclear about the exact investment made by Genting and its current ownership in Celularity, Nomura believes it should be material, with Genting’s Chairman Lim Kok Thay also being a director in the firm.

In addition to the merger plans, there will also be a new US$80 million PIPE investment (private investment in public equity) in GX shares from some existing Celularity shareholders.

As per Friday’s investor call, Nomura said Celularity’s existing investors will roll all their equity into the new company. Hence, should Genting be a part of the PIPE investment round, capital invested and shareholding for Genting in Celularity might increase, as a result of this transaction.

Assuming no redemptions by GX’s existing stockholders, with an expected pro-forma market cap of US$1.7 billion, the company will have a US$372 million total expected cash balance post the merger and PIPE round.

“This cash will form a war-chest expected to be sufficient to fund the company’s business plan for the next several years,” said the research firm’s analysts.

Recall that Genting also has other biotech investments, and TauRx, its Alzheimer’s drug research investee company, previously came close to an initial public offering (IPO) but failed in its Phase 3 trials.

“Celularity’s SPAC merger might lead to investors starting to ascribe some option value to Genting’s life-sciences division, which should lower the overall RNAV (revalued net asset value) discount at Genting,” said Nomura.

Nonetheless, at this juncture, the research firm has maintained a “neutral” recommendation in Genting, with a target price of RM4.60.

As 70% of Genting’s RNAV and 80% of earnings before interest, taxes, depreciation and amortisation (EBITDA) is still derived from the gaming business, Nomura said it prefers to play the tourism recovery theme through its subsidiaries Genting Malaysia Bhd and Genting Singapore Ltd.

Genting’s shares were down eight sen or 1.9% to close at RM4.12 on Friday, valuing it at RM15.97 billion. Over the past year, the counter was still 33% lower from a peak of RM6.16.

Source: TheEdgeMarkets