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PUBLISHED : Friday, 12 June, 2009, 12:00am
UPDATED : Friday, 12 June, 2009, 12:00am

Listing for Wynn in Hong Kong is still not a sure bet

Is Wynn Resorts dusting off plans to list its Macau business on the Hong Kong stock market?

In July last year this newspaper reported that the company, controlled by Las Vegas casino developer Steve Wynn, was mulling a blockbuster Hong Kong share sale that could have raised up to US$3 billion - possibly to finance construction of a mega-resort on Cotai.

But we also reported that the deal was unlikely to be rushed as the markets were heading downward and the company didn't have any pressing need for the cash. In other words, Wynn could afford to sit tight.

Recent weeks have seen renewed chatter in Hong Kong's financial circles that the company may be again considering a local share offering for its lucrative Macau business.

On the face of it, the timing looks ripe. The Hang Seng Index is up 65 per cent from this year's low in March. In April, the Hong Kong market hosted the world's biggest initial share sale so far this year - a HK$9.8 billion offering by a mainland aluminium products maker.

Shares are trading at the upper end of their historical valuations. Hong Kong's blue chip stock index is currently valued at 17 times forecast earnings, according to Bloomberg data. That compares to a five-year average of 14 times earnings and a peak of 21 times earnings back in November 2007.

Much of the share rally is not based on fundamentals, but has been driven by an inflow of funds from abroad. There are big questions over how long the market's current buoyancy can last - the real economic picture is still bleak - but, in the meantime, a window has been thrown open to companies seeking to raise funds via share sales.

That fact hasn't been lost on Wynn's rivals. Las Vegas Sands Corp has, for a number of weeks, been very vocal about the fact that it is considering selling a stake in its Macau business - either via a private sale or a public offering, most likely in Hong Kong.

But the pros of bringing a deal to market now are offset by a number of mitigating factors. For starters, and in apparent contrast to Sands, Wynn doesn't really need the money.

The company has around US$1.3 billion in available cash. Aside from the few hundred million dollars it still needs to spend to finish off its 400-room Encore Macau hotel tower by next spring, the firm isn't committed to any major new capital-intensive projects.

Wynn's US$4.5 billion in debt and the associated loan covenants could be seen as a concern that might warrant a bigger cash cushion to pay down debt. That concern was no doubt amplified by the bumpy start the firm's US$2.3 billion Encore Las Vegas has faced since opening its doors in December.

But the firm amended its US credit agreement in April, in order to give it more breathing space on loan maturities and leverage and interest coverage ratios - albeit in exchange for slightly dearer interest payments on the loans.

That move no doubt eased any pressure the company might have been feeling to raise cash against future loan covenant challenges.

Of course, a war chest of funds raised from a share sale wouldn't be a bad thing to have. Moreover, a listing of the Macau business makes sense in terms of giving the market access to a top-quality, pure Macau play. And if a Wynn deal made it to market first, it could soak up some of the appetite among investors for an IPO by rival Sands (not that this would be a consideration). But a local listing for Wynn is still not a sure bet.

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