DealZone

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

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.

Adelson splashes the pot in Asia

Sands China’s weak debut in Hong Kong - a first-day drop of 10 percent – was the fourth-worst launch on that market this year, but came as little shock to analysts who were betting against the Asian gambling play. Rival Wynn Macau is down 5 percent since listing in October.

Sands China’s $2.5 billion IPO wasn’t helped by the default tremors kicked off by Dubai, which has helped to expose a whole new area of risky bets in emerging markets.

“The fever for casino stocks is seen to be over now,” said Patrick Yiu, a director at CASH Asset Management. “Investors are worrying about the industry outlook, especially keen competition, when more casinos are ready for business.”

Wynn’s sure thing in China

Nobody ever got poor betting on Chinese demand for gambling, though the big players in Macau have seen a few busted flushes along the way. With more than a billion fatalists eager to hit the tables, and only one place to do it (Macau is China’s only legal gambling venue), it’s not hard to see the case that Wynn Macau and Las Vegas Sands are making for Hong Kong investors. It’s the same story Hong Kong and Macau magnate Stanley Ho has made for decades.

Wynn Macau’s $1.63 billion Hong Kong IPO, the sixth-largest in the world this year, was considered rich, despite the hype and that “sure thing” ring. After all, the colony is covered with half-finished projects and other remnants of the last time this too-good-to-be-true investment turned out to be what it was.

Wynn Macau shares ended 6 percent higher on Friday, valuing the casino giant at $6.9 billion. The solid debut bodes well for rival Las Vegas Sands, which plans to raise up to $2 billion in a Hong Kong offering for its Asia assets, most notably in Macau.