SJM Holdings weighs on Macau casino stocks after proposing a US$386 million cash call for licence renewal bid
- SJM plunges as much as 16.9 per cent in Hong Kong, dragging Sands China, MGM China and Melco along with it
- SJM’s plans to raise equity at a 34 per cent discount ‘disappointing and surprising’, says Morningstar’s Jennifer Song
SJM Holdings plunged in Hong Kong on Thursday after the company proposed an equity raise at a 34 per cent discount, as it rushes to raise funds for Macau’s gaming licensing tender.
The Macau casino operator fell as much as 16.9 per cent, before closing 12.1 per cent lower at HK$2.76, while the Hang Seng Index rose 2.1 per cent.
The company said in an exchange filing late on Wednesday that it plans to raise HK$3.03 billion (US$386 million) from issuing 1.4 billion rights shares at HK$2.08 per share, a 34 per cent discount to its last closing price of HK$3.14.
Along with an unsecured term loan of HK$2 billion from majority shareholder Sociedade de Turismo e Diversoes de Macau, analysts expect SJM to have around HK$5 billion to bid for a 10-year gaming concession commencing on January 1, 2023.
Macau has started the highly anticipated bids submission process for global gaming operators to win a licence in the world’s biggest gambling hub, which comes in the wake of the city’s worst Covid-19 outbreak that saw casinos closed for 12 days in July.
The licences of six current operators – Sands China, Wynn Macau, MGM China, Galaxy Entertainment, Melco Resorts and SJM Holdings – expire at the end of this year.
SJM’s announcement took analysts by surprise. Two days ago SJM said during a call that the company would secure HK$5 billion from shareholder loans, according to analysts present at the meeting.
“This is disappointing and surprising,” said Jennifer Song, senior analyst at Morningstar. “SJM may want to reserve some options due to future uncertainty of its earnings recovery, given it opened its new property in July 2021.”
SJM will continue to make losses if Macau gross gaming revenue does not recover to above 40 per cent of 2019 levels, she added.
“We think the knee-jerk reaction could be more significant given the level of discount and investor disappointment,” analysts at JPMorgan including DS Kim wrote in a note on Thursday.
SJM’s announcement pulled other gaming stocks lower. Sands China lost 0.3 per cent. MGM China fell 0.7 per cent and Melco International Development dropped 0.6 per cent. Wynn Macau advanced 0.6 per cent, erasing intraday losses.
Separately, MGM China said on Thursday that total revenue slumped almost 32 per cent to HK$3.2 billion in the first half, dragged down by a 47.6 per cent decline in revenue in the second quarter compared with the first three months of the year. It did not disclose profit for the period.
The company said it had HK$10.7 billion in liquidity as of June 30, including cash and cash equivalents.
“We have liquidity duration of nearly a year under a zero revenue scenario and after fulfilling capital requirement of bidding new gaming licence,” MGM said in a statement to the South China Morning Post. “We will closely monitor business and market condition while exploring opportunities to make [the] best decision for operation.”
Meanwhile, Morningstar expects a positive impact on casino operators after Macau reopened its border with mainland China on Wednesday.
The quarantine-free travel will help fourth-quarter gross gaming revenue return to 25 per cent of pre-pandemic levels in 2019, according to Song at Morningstar.
The long-term outlook for the casino industry, however, will largely depend on government policies on Covid-19 containment, as travellers from mainland China remain cautious about cross-border trips under Beijing’s zero-Covid policy, she added.