SJM defies the odds to push US$1.5b stock offering
Tim LeeMaster and Wong Ka-chun
SJM Holdings, a casino company partly owned by gaming tycoon Stanley Ho Hung-sun, plans to launch an up to US$1.5 billion initial public offering this week in Hong Kong despite investor concerns about the company's falling revenue, development strategy and legal woes.
The company plans to sell shares in the 17 casinos it operates in Macau. SJM manages most of these under legacy franchise-style agreements that entitle it to between 5 per cent and 20 per cent of gaming revenue, while it directly owns and operates new flagship Grand Lisboa, giving it a greater share of revenue.
SJM will spend HK$11 billion over the next three to five years on 11 projects in Macau. Part of the proceeds is expected to go towards the redevelopment of its ageing Lisboa casino-hotel, where work is to start next year.
German securities firm Deutsche Bank is arranging the sale with help from CLSA and BNP Paribas.
Galaxy Entertainment Group, the second largest casino operator in Macau after SJM, trades at about 18 times expected 2010 earnings - a ratio SJM would not be able to match, people familiar with the offering said.
SJM is likely to show a 58.3 per cent slide in net profit for last year to HK$1 billion from HK$2.4 billion in 2006 as labour costs and junket commissions rise, says a BNP Paribas report sent to fund managers.
The firm provided no guarantee of a dividend payout, sources said.
Investors are concerned about a perceived lack of development strategy. SJM has so far failed to announce plans to develop sites it owns on the Cotai Strip, where local and foreign rivals are rushing to build properties.
'Gaming revenue is not the prime driver and risk is high because there are a lot of homogenous products,' a person familiar with SJM said.
Las Vegas Sands Corp opened its Venetian Macao complex last year and plans another 13 hotels and retail and convention space at a cost of US$11 billion to US$14 billion. Galaxy plans to develop casino, retail and convention space on Cotai, as does a joint venture run by MGM and Pansy Ho Chiu-king, daughter of Mr Ho.
Fund managers who have been in talks with the company during pre-marketing were also uncomfortable with the land certificates, or approvals for construction, that SJM holds for some of the 11 sites it intends to develop after a government scandal rocked Macau last year.
Former Macau secretary for transport and public works Ao Man-long last year was charged with 76 counts of bribe-taking, money laundering and abuse of power between 2004 and 2006. The scandal implicated businessmen in Macau, Hong Kong and the mainland.
All land owned by SJM was transferred from parent Sociedade de Turismo e Diversoes de Macau and not involved in the scandal, a person familiar with the situation said .
The share sale has also been in the shadow of Mr Ho's estranged sister Winnie Ho Yuen-ki, who has filed unsuccessful lawsuits over the shareholding structure of SDTM.