Macau Legend re-launches IPO at half the size

Macau Legend Development, which postponed its initial public offering on Friday last week amid a shortage of demand, is re-launching the deal today after reducing the size by more than half.

The hotel and casino operator, which is controlled by business entrepreneur and former Macau legislator David Chow, and operates three casinos in Macau under a service agreement with Stanley Ho-controlled SJM Holdings, is now looking to sell 15% of its enlarged share capital compared to 29% before.

As indicated in our story on June 24, the price range has been left unchanged, which means the company could raise between HK$2.15 billion and HK$2.79 billion ($277 million to $360 million) from the base deal.

Given that the Hang Seng Index has fallen 9.1% since Macau Legend opened its order books on June 7 and other Macau casino operators are also off significantly, it seems highly likely that the price will be fixed at the bottom, however.

The company, which is raising capital to fund its $876 million redevelopment of the Fisherman’s Wharf area in Macau, was initially trying to raise between $607 million to $787 million, although 13.8% of that would have gone to selling shareholders. The restructured transaction consists of all new shares, which means that while the deal size will drop by about 54% at the bottom of the range, the gross proceeds raised by the issuer will fall by 47%.

 

Sheldon Trainor

Sheldon Trainor, a Macau Legend executive director, said that the downsizing of the deal will have no effect on the company’s planned capital expenditure and added that the money raised will be enough to cover all of this year’s redevelopment expenses and a large portion of next year’s.

“We may consider doing a debt deal after the listing, but there is no urgency,” Trainor said.

The company is projecting its capital expenditures for 2013 to 2016 to reach a combined HK$7.2 billion ($927 million), of which HK$6.8 billion is going towards Fisherman’s Wharf where it is building three new hotels with casinos as well as a general entertainment and cultural facility, a canopied open-air colonnade for shopping dining and entertainment, a dinosaur museum and an improved marina. The marina will have a yacht club with its own immigration facilities.

The capex will be staggered over four years, however, with about $387 million due this year and next.

The shareholders that were to sell shares under the original offering — David Chow’s mother and a company controlled by her — will still get a chance through the 15% greenshoe, which does consist of all secondary shares.

The unchanged price range is notable in the context of the recent sell-down in the secondary market and the cancellation of two other Hong Kong IPOs just before pricing in recent weeks. But representatives for Macau Legend said that they felt the valuation was still attractive versus the comps and added that they wouldn’t have re-launched the deal unless they were confident that it would get done.

Indeed, sources have indicated that the restructured deal was essentially covered before today’s launch. The demand should be enough to cover both the base deal and the greenshoe, they said.

Dynam Japan Holdings, an operator of pachinko game halls in Japan, which had committed to support the initial deal as a cornerstone is staying in the deal and its investment remains unchanged at $35 million.

The reason why the deal doesn’t re-launch with a fixed price seems to be that this would have taken longer as it would have required the bookrunners to first repay all the application money submitted by retail investors and then relaunch the retail offering at the new price.

The relaunched deal will be open for three days, during which institutional investors will technically have to resubmit their orders. The retail offering will not reopen, however, but investors who did subscribe to the original deal will need to confirm their orders. They have until 5pm Hong Kong time on Friday to do so.

The initial retail offering, which accounted for 10% of the total deal size, was just over 51% covered, according to the company representatives. If all of those investors re-confirm their orders, the retail demand will amount to about $31 million, which means about 11% of the restructured offering will go to retail investors. Technically the size of the retail tranche remains unchanged versus the original offering at 204.832 million shares, but since retail investors cannot submit any new orders, the actual retail tranche will be capped at about 51% of that.

In total, the restructured offering consists of approximately 934.8 million new shares that are offered at a price between HK$2.30 and HK$2.98.

The price range translates into an enterprise value-to-Ebitda multiple of between 3.8 and 5.1 for 2017, based on the average forecasts by the syndicate banks. The deal is marketed on a 2017 basis since that is the first year when all its new hotels and casinos should be up and running.

However, because most analysts don’t have forecasts for other industry companies beyond 2015, the bookrunners are also providing 2015 EV/Ebitda multiples as a reference. On that basis, the price range values Macau Legend at between seven and 9.4 times.

SJM Holdings, which is viewed as a key comparable, is currently trading at a 2015 EV/Ebitda multiple of about 7.7 times.

As a result of the re-launch, the listing date has been moved back to July 5. The stock was initially scheduled to start trading on June 27. CLSA is the sole sponsor for the IPO as well as a joint global coordinator together with Citic Securities. Credit Suisse is joining them as a bookrunner.

The confirmation of the re-launch came as two other IPO candidates in Asia decided to hold off on launching their respective deals after finishing the investor education. According to a source, Philippine-based Travellers International Hotel Group, which is seeking to raise about $500 million from an IPO of its Resorts World Manila casino, has decided to postpone it offering after feedback from investors suggested it wouldn’t be able to achieve its targeted valuation.

The company, which is a 50-50 joint venture between the Alliance Global Group of the Philippines and Genting Hong Kong, may revisit the listing plan after the summer, the source said. The Resorts World Manila casino is already up and running, but the company is aiming to break ground for its new Resorts World Bayshore project in Entertainment City sometime this year and will be needing capital for that.

Meanwhile in Singapore, OUE Real Estate Investment Trust didn’t launch the roadshow and institutional bookbuilding yesterday as initially planned even though it did receive the go-ahead for the spin-off and listing from Overseas United Enterprise’s existing shareholders at yesterday’s extraordinary general meeting.

Sources said the company, which is aiming to raise about S$900 million ($720 million), will continue to monitor the market, however, and may decide to go ahead if the conditions improve. OUE Reit has until mid-July to launch the deal, according to the sources. If it waits longer than that, it will have to update its financials.

The approval from OUE’s shareholders is valid for 12 months. OUE Reit’s portfolio will include one hotel and an immediately adjacent shopping mall along Orchard Road. Credit Suisse, Goldman Sachs and Standard Chartered are the joint global coordinators, as well as joint bookrunners together with Bank of America Merrill Lynch, Deutsche Bank and OCBC.

The Travellers IPO is being brought to market by Bank of America Merrill Lynch, CIMB, Maybank, Religare and UBS.

The delay of these two IPOs comes as no surprise given the extent of the sell-off in Asian stock markets in recent weeks. The benchmark indices in all major markets in Asia, except for the Nikkei 225, are now down on the year in US dollar terms. In local currency terms, Malaysia and Indonesia are still up, but only by just over 2%. Also, New Zealand is up 6.2% and Australia closed 0.15% above its end-2012 level yesterday.

At the end of last week, SPH Reit and NW Hotel Investment made similar decisions to hold off on launching their IPOs for the time being. SPH Reit, which is sponsored by Singapore Press Holdings, focuses on commercial properties and is looking to raise about S$540 million ($423 million) ahead of a Singapore listing, according to an earlier announcement. It is being brought to market by Credit Suisse, DBS and OCBC.

NW Hotel Investment, a business trust-like vehicle sponsored by Hong Kong conglomerate New World Development, is hoping to raise between $700 million and $800 million from a Hong Kong IPO. Deutsche Bank, HSBC and J.P. Morgan are joint global coordinators and bookrunners, while BOC International and Standard Chartered are joining them as bookrunners.

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