It was the first share placement over $100 million by a Hong Kong-listed company since Sun Hung Kai Properties raised $1.01 billion on May 9. Given that the overall market has fallen 8.3% since then, it was perhaps fitting that it was a gaming stock that ended the issuance drought.
Melco has been left rather unscathed by the broader market downturn, however, and the latest rally brought its total share price gains this year to 119%. The most recent gains came after the company said it is considering spinning off a minority stake in its Macau casino joint venture with Publishing and Broadcasting Ltd (PBL) for a separate listing on Nasdaq. PBL is owned by Australian media mogul James Packer.
The fact that the placement came so soon after the IPO announcement caused some market watchers to grumble about the share sale being opportunistic, but aside from some potential near-term selling few expected the placement news to break the uptrend.
ôThere is still so much news and positive sentiment surrounding this company and Macau that I donÆt think it will slow the momentum for too long,ö says a director of a local brokerage.
Melco, which is controlled by Lawrence Ho, the son of Macau gaming tycoon Stanley Ho, told investors it would use most of the money to pay for a recently announced land acquisition and the rest for debt repayments and other corporate purposes.
The top-up placement comprised 63.6 million secondary shares that were offered to investors at a price between HK$19 and HK$19.30, which marked a discount of 4.9% to 6.4% over MondayÆs closing price of HK$20.30. The price was fixed at HK$19.10 for a 5.9% discount after a full day of marketing the stock to Asian and European investors, which was possible because the shares were suspended from Hong Kong trading on Tuesday.
The company will issue the same amount of new shares at the same price to the selling shareholder.
Credit Suisse was sole bookrunner for the deal, which accounted for about 5.5% of the existing share capital.
According to people familiar with the offering, the order book ended up being about 2.5 times covered with about 39% of the demand coming from Asia, 36% from offshore US accounts and 25% from Europe. The allocations gave priority to non-Asian investors, however, leaving Asian investors with only 34% of the deal.
US investors are very keen on Macau gaming stocks amid projections from some analysts that gaming revenues in the former Portuguese colony will more than double to $12 billion by 2010 from $5.8 billion last year. It also probably helped that other casino-related plays in Hong Kong had a big day in terms of share price movements. Galaxy Entertainment Group set the pace with a 13.2% rise to HK$8.15, which brought its three-day advance to 26%.
Macau Success added 10.8% to HK$0.92 and Emperor Entertainment, which opened its first casino earlier this year, was up 10% to HK$2.10. The Hang Seng Index fell 0.7% .
In terms of type of investors, hedge funds and long-only funds were said to have received shares in fairly equal amounts at just over 40%. The remainder was allocated to private and corporate investors and to index funds. The latter category took the opportunity to accumulate Melco stock as the company was set to join Morgan Stanley Capital InternationalÆs Asia Pacific ex-Japan indices and its Hong Kong index from the close of trading yesterday (May 31).
The Hong Kong market was closed for a public holiday yesterday.
Melco announced last week that its 50-50 joint venture with PBL had agreed to buy the leasing rights for a 6,480 square metre plot of land on the Macau Peninsula for HK$1.5 billion ($193 million). The site will be used for the development of joint ventureÆs third hotel and casino project, the company said.
The JV is already in the process of developing a six star hotel and casino project in Taipa and an integrated entertainment resort on the Cotai Strip, called ôCity of Dreams.ö
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