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.
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.
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.”
“We’re not in this for a day’s trading, we’re in it for the long term,” Las Vegas Sands CEO Sheldon Adelson said.
So is this a time to hold ‘em, fold ‘em, walk away or run? Adelson clearly is not counting his money while sitting at the table, and there will be many who argue that betting against the Chinese appetite for gambling never made anyone rich. More likely, fund managers will look for more attractive price points to place their bets, while Sands plays with house money.
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.
Macau gambling revenues hit a monthly high of $1.4 billion in August, a faster-than-expected recovery compared with Las Vegas, and revenues are believed to have been stronger still in September as China relaxed restrictions on its citizens crossing into Macau from Guangdong Province, reports Sui-Lee Wee.
Analysts say the IPO was perfectly priced and that the twin dangers of competition from other potential gambling hotspots in the region and the inscrutable winds of Beijing’s political climate could turn the tables quickly on these investments. Place your bets.
