Genting Group Subsidiary Facing Insolvency After Failing to Secure Lifeline

A few years ago, Genting Hong Kong set out on a mission. It envisioned a fleet of casino cruise ships and was so determined to realize its dream that it bought its own shipbuilder in Germany. It didn’t take long before trouble surfaced by way of a global pandemic, and Genting Hong Kong was caught in a storm. Now, the shipbuilding business is sinking.

Genting Hong Kong Shipbuilding Plans Sunk

Genting Hong Kong has warned that insolvency proceedings filed in its shipbuilding affiliate are likely to trigger default actions on around $2.78 billion of debt. The agreement was part of a series it recently signed with lenders.

The company, which operates under the Genting Group umbrella, reported that MV Werften Holdings Ltd. (MVWH) filed for insolvency. The filing was made after the firm tried to obtain $88 million from the State of Mecklenburg Vorpommern’s backstop facility in mid-December. That attempt failed.

In its filing, Genting Hong Kong explained, “The MVWH Insolvency Filing made by MVWH gives rise to an event of default under the Global 1 Facility Agreement, and this will in turn trigger cross-default events under certain financing arrangements of the Group that have an aggregate principal amount of approximately US$2,777,000,000.”

Forced to Take Undesirable Action

Genting Hong Kong affirmed that it was required under German Law to file for bankruptcy due to a lack of funding to MVWH. The company also revealed that it was Euler Hermes, a German government export credit insurance agency, who had blocked the release of the financial lifeline by refusing to verify insurance coverage.

Genting said that the refusal was based on a business analysis by Euler Hermes. The review considered multiple stress scenarios, including a sustained and persistent reduction in business activities, as a consequence of COVID-19.

Genting countered that analysis in its filing that “such a business review is not a pre-condition to Euler Hermes confirming insurance coverage” and that it “does not consider the assumptions used in the business review as fair and reasonable.”

Insurance Carrier to Blame

It was also noted by Genting that Euler Hermes relied on these findings to deny it insurance coverage despite the company already having paid the Hermes insurance premium.

The company argues it is contractually able to draw down the funding in accordance with previous agreements. Still, it does not have the power to demand assistance from its banking partners.

It asserted that the “relevant counterparties’ failure to perform their binding contractual obligations have created an immediate and significant gap in the expected liquidity resources of the Group.”

“Subject to the outcome of the hearing of the Company’s application on 11 January 2022 … there is no guarantee that the Group will be able to meet its financial obligations under its financing arrangements as and when they fall due,” it concluded.