KUALA LUMPUR, Aug 21 — Billionaire Tan Sri Lim Kok Thay has pledged nearly all his stake in Genting Hong Kong Berhad as collateral for loans after the cruise operator’s share price tumbled 38 per cent, Bloomberg reported yesterday.
The selloff was at record level the business newswire said. The move came after the company said it suspended all payments to lenders in a bid to maintain its critical services.
Genting Berhad’s stock value has plunged by almost two-thirds since December. The conglomerate is just one of many of the companies that form Lim’s empire now seemingly hit hard by the Covid-19 crisis.
His casino-to-hospitality conglomerate and its units had their first-ever group-wide salary cut earlier this year, and his Genting Malaysia Bhd. said in June it was laying off thousands of workers.
According to Bloomberg, Lim has been pledging more of his holdings as the shares have plunged, committing almost all of his 76 per cent stake or six billion shares in Genting Hong Kong. This was up from 5.5 billion shares in April, the newswire reported.
“As of March, he had pledged 550 million of his Genting Bhd. shares — or 32 per cent of his holdings — compared with 70 million a year earlier, according to the company’s annual reports,” the report said.
The collateral could raise the risk of a margin call. A margin call refers to a broker’s request that an investor deposit additional money or securities into the margin account so that it is brought up to the minimum value, also known as the maintenance margin.
A margin call takes place when margin accounts’ value fall below the broker’s required amount.
Michael Melbinger, a Chicago-based partner at Winston & Strawn who specializes in executive compensation, suggested the share pledging could put Lim in a much tougher position.
“Many companies hit a bump in the road causing a sudden decline in stock price,” Melbinger was quoted as saying.
“That happens. However, when this bump causes the most significant shareholder and director of the company to have to sell shares, or a margin call automatically triggers the selling, the problem becomes much, much worse.”
But pledging shares is not unusual, especially in Asia where high-growth companies are more common and tycoons often turn to lenders and other financial-services firms that offer cash in exchange for committed stock, according to Bloomberg.
Tesla Inc’s Elon Musk, SoftBank Group Corp’s Masa Son and Oracle Corp’s Larry Ellison are among those who have relied on the practice to get loans, which are typically a fraction of the value of the pledge.
Lim’s fortune is now valued at about US$700 million (RM3 billion) excluding pledged shares, down from US$1.5 billion at the start of the year, according to Bloomberg Billionaires Index.