Deals wrap: MGM China IPO may be a gamble for investors

May 27, 2011

Macau casino operator MGM China, co-owned in part by casino mogul Stanley Ho’s daughter Pansy Ho, raised $1.5 billion from its Hong Kong initial public offering after pricing it at the top of its indicative range, triggering some concerns about lofty valuations.

Gambling revenues in the world’s largest gaming market are at record highs, dwarfing those of Las Vegas and fueling a surge in share prices of local casino operators that boosted demand for MGM China’s IPO.

But the rally may have pushed stock prices in the sector too far, reducing their appeal to some investors according to some analysts.

However, shares of Macau’s biggest casino operator SJM Holdings, which has nearly three times the revenue of MGM China, have surged nearly 52 percent so far this year. If MGM China can duplicate the success of SJM, the fears about high valuations should subside.

With the deal Pansy Ho is now worth nearly $2 billion more than her legendary casino father “king” Stanley.

In other news, Yandex said the underwriters of its recent blockbuster Nasdaq IPO had exercised an over-allotment option in full, bringing the total raised to $1.43 billion.

Yandex, which raised $1.3 billion in the biggest internet IPO in the U.S. since Google nearly seven years ago, saw its shares surge 55 percent in their trading debut on Tuesday.

The Russian internet company isn’t the only recent IPO to hit the options market. Investors who believe LinkedIn is overvalued after its explosive market debut last week may get their first crack at proving that on Friday, when options in the stock start trading on U.S. exchanges.

Felix Salmon, with the help of SDC Platinum, takes a look the ratio of foreign IPOs to domestic ones, for U.S. companies, on a rolling five-year basis, to see whether the current level around 10% constitutes a big spike upwards. The following chart has the answer.

Finally, George Chen tries to define of the vague “China story” and why he is worried about the IPO market.

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