SJM Holdings wins nod for US$1b IPO

PUBLISHED : Tuesday, 08 January, 2008, 12:00am
UPDATED : Tuesday, 08 January, 2008, 12:00am

Interest in offering may be blunted by increasing rivalry in Macau's gaming industry

Casino operator SJM Holdings, partly owned by gaming tycoon Stanley Ho Hung-sun, has been given the clearance for its US$1 billion initial public offering in Hong Kong, according to a source close to the deal.

The company, one of six operators permitted by Macau to operate casinos in the enclave, attended a meeting of the Hong Kong exchange's listing committee last month, and met officials again last week to get formal approval for the jumbo offering.

The deal is being brought to the market by Deutsche Bank, the global bookrunner, and syndicate members CLSA and BNP Paribas.

The offering will be launched on January 15, the first day of a roadshow for global institutional investors. The sale of shares to the public will be on January 21, according to a sale document sent to fund managers, with trading expected to begin February 1.

Despite the backing of veteran Macau hand Mr Ho, market watchers say enthusiasm for the initial public offering may be blunted by growing competition in the Macau gaming industry.

Rising labour costs and junket commissions are among factors taking their toll on the bottom line. According to a report by BNP Paribas sent to fund managers, the company is expected to state a 58.3 per cent slide in net profit for last year to HK$1 billion from HK$2.4 billion in 2006.

With some of the biggest names in the global gaming industry now represented in Macau, SJM needs to sell a fresh image to attract customers.

SJM, the largest casino operator in Macau in terms of gaming revenue as of June last year, may use the share sale proceeds to redevelop the old Lisboa casino hotel. It said last week that it would start work next year on a new project to replace the 38-year-old Lisboa, which sits on a prime 188,000 square foot site in central Macau.

SJM is the only one of Macau's casino operators that has not announced plans for a project on the Cotai strip, where dozens of mega resorts are slated for completion in the next three years.

'In terms of competitiveness SJM still has more properties than anybody else and they are still the largest player in Macau in terms of market share,' said Rob Hart, an analyst at Morgan Stanley. 'Obviously, they used to have 100 per cent of the market and their market share is shrinking, as you would expect with all the new competition coming in.'

Seventeen casinos in Macau currently operate under SJM's gaming licence, but most of these are managed under legacy franchise-style agreements that entitle SJM to between 5 and 20 per cent of gaming revenues.

The company's new flagship Grand Lisboa is directly owned and operated, and is expected to be a significant boost to SJM's bottom line going forward. 'I guess the shift they need to make is from being more passive and letting other people run their casinos to actually running them themselves,' Mr Hart said.

'That becomes trickier now because the market is more competitive.'

Changing fortunes

SJM's net profit for last year is expected to decline 58.3 per cent to, in HK$: $1b