Louis XIII Holdings, the company that was formed early this year and is in the process of developing a highly exclusive boutique casino and hotel in Macau, has raised an additional $133.5 million towards the funding of the project through a combined sale of equity and zero-coupon convertible bonds.
The deal includes a share placement of about HK$735 million ($94.6 million) that was sold to investors through an accelerated bookbuild after the market closed on Thursday last week and a $38.7 million Hong Kong dollar-denominated CB that will be taken up by the Ontario Teachers’ Pension Plan. The OTPP also bought $130 million worth of CBs when the company raised its first round of capital in January this year.
Louis XIII raised $411 million in January, split between $256 million of equity and $155 million of CBs. This was a massive undertaking given that the company had a market cap of just $84 million at the time. The overall deal came with an upsize option of about $200 million that wasn’t exercised and hence the company had been expected to return to the equity market at some point to raise more funds.
The total development cost of the Macau casino project is currently estimated at about $1 billion, which is up from an earlier estimate of about $774 million in January. Including the $133.5 million raised last week, the company does now have enough capital to fund the equity portion. The rest will be covered by bank loans.
In an announcement issued on Thursday last week, Louis XIII said it is in also “advanced discussions” with a mainland China-based bank to obtain a credit facility of about HK$3 billion ($387 million) as well as a working capital facility of about HK$1 billion ($129 million), subject to final terms and documentation. Assuming the loans come through, the company will have raised a total of about $1.06 billion of equity and debt in less than 12 months, based primarily on a vision and a few blueprints of an ultra-luxury project that is scheduled to open in early 2016.
By now, the construction has started, however, and earlier this week the company said it has appointed internationally acclaimed architect Peter Marino as exterior design theme architect and interior design theme consultant. Marino runs his own New York-based architecture, planning and design firm and according to a press release he has designed the flagship stores of many of the world’s leading luxury brands, including Chanel, Louis Vuitton, Christian Dior, Ermenegildo Zegna, Graff, and Loewe.
“We are absolutely thrilled to have Peter on board,” Louis XIII’s chairman Stephen Hung said in the release. “He has a unique ability to bring together luxury and excitement in ways that continually surprise and delight. Peter has created an iconic tower for Louis XIII that is elegant, timeless and perfectly captures the concept of extreme luxury.”
Louis XIII was created early this year when Hong Kong-listed construction and engineering firm Paul Y Engineering Group (PYE) teamed up with Hung and his son and shifted most of its business focus towards this particular Macau project. PYE is still involved in construction, but distributed 49% of its construction and engineering subsidiary to its existing shareholders through a distribution in specie and changed its name to Louis XIII Holdings, leaving no doubt about where its priorities lie.
The new shares were offered at a fixed price of HK$8.23 apiece, which translates into a 15.1% discount versus Thursday’s closing price of HK$9.70. The stock is currently trading 43% above the January placement price after adjusting for a 10-for-1 share consolidation in May. The January placement was initially done at a price of HK$0.68 per share.
The deal consisted of approximately 89.2 million new shares, but because the total number of shares exceeds the 20% of the existing share capital that the company can sell without a special approval from its existing shareholders, the deal was split into two parts. The first part, accounting for 20% of the existing share capital and about $76.5 million, has been allocated already, while the second part, which accounts for 4.8% of the existing share capital and about $18.1 million, will be distributed to investors by mid-December after shareholders have had a chance to approve it at a special general meeting.
According to the source, the combined placement was comfortably covered and attracted more than 30 investors. They buyers included a combination of long only investors and hedge funds as well as some gaming specialist funds. The deal also received good support from the company’s existing CB holders.
The new CB will have similar terms to the one issued earlier this year and will mature on the same day: February 5, 2025. It has a zero percent coupon and yield and a conversion price of HK$8.23, which is equal to the latest placement price. The initial CB is convertible at a price of HK$6.65.
The deal was seemingly well received by the market. Louis XIII’s share price, which closed at its highest level since the January capital-raising just before the Thursday transaction, fell 8.1% on Friday. This was significantly less than the 15.1% placement discount and the stock closed well above the HK$8.23 placement price at HK$8.91.
The Louis XIII boutique hotel is described as a seven-star property that will outdo all other hotels in Macau in terms of luxury. It will have 236 rooms, or suites rather, that will rent for a minimum of HK$10,000 per night. There will be 66 gaming tables with a minimum table bet of about HK$5,000 and the attached retail shops are proposed to be by appointment only.
It will cater primarily to wealthy individuals who use their own money to gamble, as opposed to the so called VIP clients who typically use credit provided by junket operators when they hit the tables.
Marino noted that when he designed the exterior of the hotel he imagined a royal red robe wrapped around a crystal core that rises from a 20-metre diamond – the most perfectly formed geometric material on the planet.
The project is the vision of Stephen Hung, who is a former co-head of investment banking for Asia at Merrill Lynch and known as something of a deal-maker in Macau. Among other things he is a major shareholder in the Rio Hotel & Casino. He also owns 12.4% of Louis XIII, making him the single largest shareholder after ITC Corp.
The deal was jointly arranged by CLSA and Deutsche Bank.
