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Australia's casino king, James Packer, has all but cashed in his chips in Macau after completing two stake sales in Nasdaq-listed Melco Crown Entertainment Ltd (MPEL).
A $669.9 million publicly marketed equity transaction on Thursday followed hot on the heels of a $1.18 billion stake sale to joint venture partner, Melco International Development Ltd, one day earlier.
Together the two transactions reduce ASX-listed Crown Resorts' holding in MPEL from 27.4% to 5.8%.
Timing of both transactions was highly symbolic.
The public equity transaction was launched and completed just before the opening bell on the Nasdaq - rung by none other than MPEL Chairman and CEO Lawrence Ho to mark the stock's 10th anniversary.
One decade ago, MPEL completed the largest ever Nasdaq listing by an Asian company, raising $1.14 billion. The flotation marked a new high point in an alliance between the fathers of both men - Macau's original gaming magnate Stanley Ho and Australia's richest man, Kerry Packer.
The two had established a joint venture one year earlier in 2005. This had enabled Packer to gain a toehold in Asia and gave Ho access to cash to ward off US rivals that had been descending to Macau en masse after the former Portuguese territory opened up its gaming licences in 1999.
One decade later and those international ambitions have now come to an end, at least temporarily, although Packer junior will be able to console himself with the proceeds of an A$500 million special dividend being issued by Crown Resorts - half of which he is due to receive himself.
In addition to the stake sale, Crown Resorts also announced it is cancelling plans to spin off its international assets and build a casino in Nevada. The retreat follows the recent detention of 18 Crown employees in China, three of whom were subsequently arrested on gambling offences as Xi Jinping continues his anti-graft campaign.
Financial analysts remain divided about the longer-term impact of the arrests and recent measures to limit cash transactions in Macau, where the gaming sector had been shown strong signs of recovery.
Deal terms
This mixed picture formed the backdrop to the public equity sale, which was underwritten and marketed by joint global co-ordinators Deutsche Bank, Morgan Stanley and on UBS on Thursday.
A 40.973 million ADS deal (where one unit equals three shares) was marketed on a range of $16.30 to $16.75 according to a termsheet seen by FinanceAsia. This represented a 5.83% to 3.24% discount to Wednesday’s $17.3 close.
Pricing was fixed just off the bottom end of the range at $16.35, or at a 5.5% discount.
Crown Resorts will now be subject to a three-month lock-up before it can sell further shares.
Specialists said there was a highly concentrated order book, with participation from about 40 accounts.
At Thursday’s close, the stock had slid 5.95% to $16.28.
However, the block trade is unlikely to weigh heavily on secondary market volumes for too long given it accounted for only 13.38 days average volume. On the contrary, it will do much to improve longer-term liquidity, boosting the freefloat by roughly a fifth.
Some analysts have argued that Melco should switch its listing from the US to Hong Kong where its competitors are. They also note that Asian investors are currently more heavily weighted in gaming stocks than their US and European counterparts.
MPEL is currently the most expensive of its peers on a forward basis, trading around 26.5 times 2017 earnings according to Credit Suisse estimates compared to a sector average around the 12.6 times level.
On a forecast 2017 EV/Ebitda basis, however, it is the cheapest at 9.6 times compared to a 12.6 times average, again according to Credit Suisse.
Crown Resorts 8.2% divestment follows an agreement, one day earlier, to sell a 13.4% stake in MPEL to Melco International, which will become the controlling shareholder on 51.3%. This 66 million ADS deal was fixed at $18 per unit and is expected to close in the first quarter of 2017 pending regulatory approval from Macau.
Packer will now step down from his role as MPEL deputy chairman and also quit the board, leaving Crown Resorts with just one seat.
He stepped down as co-chair in May after offloading an initial 6.9% stake to Melco International. At the time he said Crown Resorts intended to “maintain a significant stake in Melco Crown.”
Cash crackdown
Both sales follow a sudden and precipitous drop in gaming shares on December 8 after a report that China UnionPay cardholders would see their daily ATM limit halved to MOP5,000 ($625). MPEL’s share price dropped 13.71% on the day from $19.55 to $16.87. The report was denied by the Macau Monetary Authority the following day, though mainland Chinese cardholders would be limited to withdrawing MOP5,000 per transaction..
The report came one week after the government said it was adopting a new MOP120,000 cash declaration rule for visitors.
Some believe the measure is a sign of a Chinese government crackdown at a time when the renminbi is depreciating and outflows are increasing. However, others believe they are more likely the result of a recent audits by global anti-money-laundering body FATF (Financial Action Task Force) and Macau’s gaming inspection bureau, DICJ.
Credit Suisse for one believes the recent momentum in gross gaming revenues (GGR) will be sustained and says the industry is witnessing a new up-cycle.
Analysts have been forecasting GGR to increase by roughly 10% to 15% in 2017 compared 2016, which has been a recovery year following 2015’s 34% contraction.
Others are not so optimistic. On December 9, UOB Kay Hian cautioned investors to wait for 10% to 20% pullback in share prices before re-entering the market.
“We maintain our view that valuations remain stretched in the sector where current above average valuations imply the market is expecting higher than realisable growth,” it concluded.
