Melco International Development raised HK$1.277 billion ($164 million) yesterday (May 17) via a 70 million share top up placement led by Credit Suisse First Boston. Proceeds are being used to fund an acquisition in Macau the group sealed last Thursday in association with Australia's Publishing & Broadcasting group, owned by Kerry Packer.
The stock has been suspended since May 10 pending the announcement of a $214 million deal to acquire a 25-year lease from the government to develop a 113,325 million square plot on the Cotai Strip. The two groups have established a joint venture to build an underwater casino with 450 gaming tables and 3,000 slot machines, plus a four and five star hotel, two blocks of serviced apartments, a luxury shopping mall and a 4,000 seat performance theatre.
The placement was priced at HK$18.25 per share, which represented a 5.9% discount to the stock's HK$19.40 close prior to its suspension. Pricing came towards the bottom end of a HK$18.10 to HK$18.70 range, which equated to a discount of 3.6% to 6.7%.
Investors' price sensitivities were said to have fallen at the mid-point of the range. However, the lead is said to have taken a fairly conservative stance following a difficult day on the Hong Kong Stock Exchange. Local indices ended down 1% to 2% after Chinese Premier Wen Jiabao reportedly said the Mainland will not be re-valuing its currency over the near-term.
After being launched during Asia's morning, the order book closed late morning European time about one-and-a-half times covered. Most investors that participated already owned the stock.
The deal represents 26 days trading and will expand the freefloat by 38%. Pre deal, groups related to the Stanley Ho family owned 39.2% of the company.
The stock is not presently covered by many houses, but lead manager CSFB has it trading at about 21.7 times 2005 earnings and 7.3 times 2007 earnings when profits from some of its projects start to kick in. Melco's valuation is complicated by the greenfield nature of its current portfolio and the explosive re-birth of the Macau gambling industry, which has pushed the stock into the stratosphere.
One a one-year basis it has returned 794.51%, but is down 1.52% year-to-date. As a result of the new acquisition, CSFB calculates that its DCF valuation will expand from HK$24 to HK$30 per share.
