SJM float raises Macau stakes
The stakes are getting higher in Macau's gambling industry, with dominant player Sociedade de Jogos de Macau (SJM) tipped to cash in by fast-tracking to the second quarter its estimated $15 billion Hong Kong initial public offering.
In an announcement issued in Macau yesterday, SJM's shareholders were notified of a meeting at the end of the month to discuss a proposal to set up a Hong Kong-registered company in which SJM shares or assets would be injected for listing in Hong Kong.
The listing must be approved by shareholders and the Macau government.
According to a company source, SJM has prepared all the necessary documents for kicking off the listing process. Sources said Deutsche Bank had been chosen as financial adviser, with Deloitte Touche as auditor for the listing vehicle. Both companies declined to comment.
SJM executive director Ambrose So has told the South China Morning Post he expects the listing to be in the second quarter, but the board may seek more legal advice before submitting an application with the Hong Kong authorities.
Last week, Australia's Publishing and Broadcasting Ltd (PBL) and partner Melco International Development paid US$900 million for a sub-concession from Wynn Resorts of Las Vegas, effectively Macau's sixth and final casino licence.
The price was up 350 per cent from the amount paid for a similar sub-concession in April last year, an indication that Macau's gambling industry might be reaching the jackpot, which could prompt some players to cash out or restructure through strategic partnerships or new share issues to monetise their assets and market positions.
While an SJM listing in Hong Kong has long been mooted, what makes the imminent offer intriguing is a looming showdown between Stanley Ho Hung-sun, who controls SJM, and his sister, Winnie Ho Yuen-ki, who owns 7.3 per cent of Sociedade de Turismo e Diversoes de Macau (STDM), owner of 80 per cent of SJM.
According to a spokesman for Ms Ho, she will probably block plans to spin off some of SJM's assets for a listing as she has accused Mr Ho of depriving her of control over the firm and ignoring minority shareholders' interests, charges that Mr Ho has repeatedly denied.
However, observers say Ms Ho will probably fail.
STDM controls 80 per cent of SJM through STDM International, with the rest equally split by Mr Ho and several senior SJM managers.
Under STDM's rules, a substantial transaction such as SJM's listing has to be approved by two-thirds of shareholders in attendance, who must represent no less than 75 per cent of the company's stock value.
Observers say that even if Ms Ho persuades the Henry Fok Foundation to vote with her, their collective shareholdings of 32.6 per cent of STDM will not be enough to block the plan.
A key ally for Mr Ho will be Cheng Yu-tung, who controls 13.9 per cent of STDM. Besides, some observers say, the Henry Fok Foundation may actually go with the plan as this could improve the transparency of SJM's operations.
Following the example of Galaxy Entertainment, SJM was expected to inject all its economic interests from the gambling concessions into a new listing vehicle, with other SJM or STDM assets added to improve valuation, Mr So said.
He did not specify the other assets that might be injected, but the market expects the new vehicle will get property holdings from SJM.
According to analysts, the new vehicle will probably raise about $15 billion by floating 25 per cent of new shares, with a total valuation of $60 billion, most of that from the value of the licence itself.
'SJM may at best be assigned a forward [price-earnings ratio] of 15, compared with 38 enjoyed by Las Vegas Sands,' BOC International analyst Ken Yeung said.
He forecast SJM would report a net profit of $38.2 billion for last year, excluding the exceptional gain from the sale of a gambling sub-concession to a joint venture between MGM Mirage and Mr Ho's daughter, Pansy Ho Chiu-king.
Mr Yeung expects earnings of $34.4 billion this year in the face of growing competition.
In 2004, SJM reported $34.2 billion in gambling revenues, up 22.6 per cent from a year earlier, and an after-tax profit of $4.17 billion, a rise of 20.7 per cent.
Some analysts say the Melco deal might make SJM's listing less appealing to investors. After all, a dual listing by Melco's joint venture in Hong Kong and Sydney could provide investors an alternative to tap into Macau's casino market.
Also, the deal will deprive SJM of hefty licensing revenues from PBL's Crown Macau and City of Dreams projects, which originally intended to outsource their gambling operations to SJM.
Finally, SJM will inevitably come under the assault of a number of global players.
Still, observers said the firm had displayed some savvy in running its lucrative VIP gambling businesses.
Besides, according to Frank Chan, a director of online gaming services provider Samvo Entertainment, casino operators registered in Nevada such as Las Vegas Sands are not allowed to partner with outsiders to provide VIP services. This means SJM can enjoy a near-monopoly in the high-end market.
Mr Chan expects SJM to hold on to its high-roller businesses with a more than 50 per cent market share in the foreseeable future, given that Mr Ho is still playing a key role in the management.
In a way, a listing may not shelter SJM from competition, but it can help monetise its leading position while raising funds for other projects. Ultimately, it would help ensure the company was institutionalised even after Mr Ho's retirement, an analyst said.
