Legal action delays SJM listing

Winnie HoÆs latest legal action forces SJM to postpone its trading debut until next week, even as the court declines to hear the case.
Today was supposed to be the day that Sociedade de Jogos de Macau (SJM) finally achieved the listing that it has been striving for over the past two years. But the casino operator will have to wait another week after yet another legal action by Winnie Ho forced the company to delay the trading debut until July 16 to give investors a chance to take in the potential consequences of her latest challenge.

The sister of Stanley Ho, Macau gambling tycoon and the man behind SJM and its parent company Sociedade de Turismo e Diversoes de Macau (STDM), was seeking a judicial review of the decision by the Hong Kong stock exchange and the Securities and Futures Commission to approve the listing of SJM. The lawsuit was rejected yesterday afternoon, but by that point the company had already moved the listing date.

SJMÆs troubles might not be completely over, the companyÆs CEO Ambrose So admitted at a press conference following the court ruling. ôWe cannot speculate as to what Winnie Ho might do in her campaign to disrupt the company,ö said So. He further hoped that the ruling in favour of SJM would reassure investors who have subscribed for shares in the company.

Investors need reassurance since they are no longer bound into the $494 million deal. Yesterday a supplementary prospectus was issued that adds to the risk factors that were listed in the original prospectus. The main risk being that SJM could be subject to further legal action, which, if it occurs after the listing, could force the companyÆs shares to be suspended. On the basis of this, people who have already invested in the company have until 5pm Hong Kong time tomorrow (July 11) to decide whether they wish to withdraw their orders.

The company did devote four pages in the prospectus to the 37 pending lawsuits that Winnie Ho has filed against SJM in Macau and Hong Kong û the most important of which challenge certain aspects of an earlier group restructuring. However, her move to call for a judicial review of the regulators wasnÆt anticipated in the original prospectus and thus constituted new information that had to be disclosed in order for the company and the bookrunners to cover all the angles.

Further legal action will not stop the process: ôThe listing will definitely go ahead, even if she appeals,ö says one source, adding that now that investors have been alerted to the possibilities of prolonged legal action they know the risks and can weigh them into their investment decisions. Another issue, however, is how many investors will take advantage of the option to cancel their subscriptions û if a lot of them choose to do so, the offer could in theory be undersubscribed and result in the company deciding not to go ahead.

The fact that SJM and sole bookrunner Deutsche Bank were able to price the deal last week in difficult market conditions was seen as something of a triumph û especially since three other IPOs were cancelled in the same week. But while SJM did manage to price, it did so with an institutional order book that was only ômoderately oversubscribedö, according to a separate statement issued by SJM yesterday. A small fluctuation in the number of investors could therefore seriously harm the companyÆs chances of moving forward.

The 10% retail tranche was 1.17 times covered, while the 5% of the offering that was set aside for SJM employees was only 0.04 times covered. The rest of the employee shares have already been re-allocated to institutional accounts and will have little bearing on the success of the deal as such, but some investors may ask themselves whether SJM is indeed a good investment when the people working for the company donÆt even want to own it.

There were no signs yesterday of investors pulling out and even if some decide to, there is ôenough flexibility and room (in the institutional book) to have a high degree of confidence that the listing will go aheadö, says one source.

Another observer notes that with the local stockmarket having been under pressure for most of the past month, the investors who submitted orders in the first place are the ones who really like the company and are prepared to stick with it for the long term. ôThe good thing is that whoever did come in has thought long and hard and they are not the quick spinners,ö the observer says.

Investors might find solace in the fact that gaming stocks, which have been battered hard this year, have rallied to some extent since SJMÆs pricing on July 3. Wynn Resorts is up 5.7% and MGM is up 9.7%. Las Vegas Sands have been less of a gainer but saw a 2.2% boost on July 8. The Hang Seng Index is still at roughly the same level where it was a week ago, but it has been a volatile week with alternating jumps and dips of 2%-3% in three of the past four days.

SJM is sprung from the former monopoly that dominated MacauÆs gaming industry for decades, up until the liberalisation in 2002. Despite having lost market share to the competition since then, it still operates 19 of the cityÆs 29 casinos, making it by far the biggest operator.

Last week the company priced its shares at HK$3.08 apiece, which was equal to the bottom of the indicated range. This meant that the company would raise $494 million from the sale of the 25% stake. Whether or not it will ever see this money may depend on whether investors are willing to bet that Winnie Ho has played her last card.
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