When the Hang Seng Index erased the last of this year’s gains a couple of weeks ago, bankers predicted that the share price clump may trigger more block trades as investors try to secure some profit — or perhaps cut their losses — ahead of the half-year mark. Or as one banker put it, “there could be a lot of motivated sellers.”
Now there are signs that this is actually happening. Last night, US asset manager Waddell & Reed raised a combined $253 million from the sale of small portion of its stakes in Hong Kong-listed Macau casino operators Sands China and Wynn Macau. Modelled on Temasek’s two sell-downs in Bank of China and China Construction Bank, the sale was done through two separate, but concurrent, block trades. UBS was the sole bookrunner for both transactions.
The two deals were similar in size and to make it easy for investors they were both marketed at a 3% to 5% discount versus yesterday’s close. Both saw quite a lot of price sensitivity at the bottom of the range and were priced at the maximum 5% discount, which was not too big a surprise, given the current market environment.
According to a source, the sale was part of a rebalancing of Waddell & Reed’s portfolio — rather than a big disposal — and since it will still hold a sizeable stake in both companies it wouldn’t have made much sense to try and push the price another few cents higher as that could have had a negative impact on its remaining positions.
Waddell & Reed offered 41 million shares in Sands China at a price between HK$24.18 and HK$24.68. At the bottom of the range, this translated into a total deal size of HK$991.4 million ($128 million). The shares accounted for 0.5% of Sands China’s share capital and about 11% of the asset manager’s total stake in the company.
According to Bloomberg data, Waddell and Reed will still own about 4.1% of Sands China after this transaction. Based on yesterday’s closing price of HK$25.45 that stake is valued at about $1.01 billion.
It also offered 55.5 million shares in Wynn Macau at a price between HK$17.53 and HK$17.90. This stake was slightly larger as a proportion of the company, accounting for about 1.1% of the share capital and six days of trading (as opposed to about 2.5 days for the Sands China stake), based on the average daily turnover in the past three months. It also accounted for just over 27% of Waddell & Reed’s holdings in Wynn Macau.
At the bottom end of the price range, the total deal size was HK$972.9 million ($125 million). Waddell & Reed will still own approximately 2.8% of Wynn Macau, which based on yesterday’s close of HK$18.46 is valued at about $355 million.
The source said both deals were multiple times covered when they closed after about three-and-a-half hours of bookbuilding. The demand was split between long-only accounts and hedge funds and was supported by a number of investors covering short positions, as the short interest in both stocks was relatively high leading up to this deal. There was also some additional buying from existing shareholders. Both deals attracted a bit more than 30 investors, and while there was no immediate information on that, the similar composition of both order books suggests that there was a fair bit of overlap between the two deals.
The timing of the sale was somewhat surprising as Asian markets were under pressure again yesterday ahead of the Greek election on Sunday and after Moody’s cut its credit rating on Spain by three notches to Baa3. The Hang Seng Index dropped 1.2% and Sands China and Wynn Macau lost 4.3% and 2.9% respectively.
The Macau casino operators have been on a generally declining trend since mid- to late April and yesterday Macquarie cut its growth forecast for the sector, arguing that growth in the mass market segment is starting to soften as well. This came after Macau gaming revenues grew only 7.3% in May from a year earlier — the slowest growth rate in 35 months, according to a Citi report. However, the May revenues of 26.1 billion patacas ($3.2 billion) were still the second-highest monthly figure on record.
And while Sands China and Wynn Macau have fallen about 22% and 26% respectively from this year’s highs, the stocks are still up significantly since their listings. Sands China, which is controlled by Las Vegas-based Sheldon Adelson, is currently up 145% from its IPO price of HK$10.38. The company listed in November 2009 following a $2.5 billion IPO.
Meanwhile, Wynn Macau, which is owned by Las Vegas gaming magnate Stephen Wynn, is up 83% from its IPO in October 2009, which raised $1.63 billion.
Waddell & Reed invested in both companies at the time of the IPOs and hence it would be sitting on sizeable gains, irrespective of the recent declines.
As a result, it was probably not too worried about taking a bit of a discount in return for the certainty that the shares would all be placed in one go and at the same price — as opposed to if it was to have dribbled them out through the open market. And by selling shares in both companies at the same time it also avoided a potential overhang on the second stock, which could have happened had it chosen to reduced its holdings in the companies one by one.
There is no lock-up on its remaining shares, but Waddell & Reed supposedly told investors last night that it has no intention of disposing of more shares in either of these two companies in the near-term.