Melco privatisation plan hits Manila's gambling dream

Macau casino operator ready to pay $210 million to take City of Dreams Manila into its own hands as listing gamble fails to help group raise capital amid weak turnover of shares.
City of Dreams Manila
City of Dreams Manila

Melco Resorts and Entertainment, the Macau-based casino and resort operator owned by Hong Kong billionaire Lawrence Ho Yau-lung, is taking its integrated casino project in the Philippines off the stock market for P11.4 billion ($210 million) as part of a corporate restructuring at group level.

The Nasdaq-listed casino operator said on Monday it had launched a voluntary tender offer for the 27.23% interest it does not already own in Melco Resorts and Entertainment (Philippines), the holding company of the City of Dreams Manila complex.

The privatisation plan reflects tepid trading in its shares, which undermined Melco's hopes of raising capital in the Philippines. It's also a blow to the Philippines' ambition of becoming a major gaming hub for Southeast Asia.

City of Dreams Manila is one of the three integrated casino and resort complexes in Entertainment City, a gaming strip located near the Philippine capital that is being promoted as a new gambling hub in Southeast Asia to rival Macau, Singapore and Las Vegas. The complex, which cost $1.3 billion and opened in February 2015, is Melco’s only operation in the Philippines.

Melco will purchase 1.57 billion shares of the Philippine unit from existing shareholders for P7.25 each, representing a 17% premium to the undisturbed price since rumours of the privatisation plan surfaced last week. The spread has since tightened to 4% based on Melco Philippines’ P6.96 Friday close.

The group said it planned to delist Melco Philippines because it has been unable to raise capital from the local stock market. That was largely because the company has an extremely low turnover of shares, averaging just 4.5 million shares per day – less than 0.1% of its free float.

Melco Philippines raised public capital twice since the City of Dreams complex was injected into the listco through a backdoor listing in 2013. At that time, the company raised $377 million and a year later it raised another $125 million through a top-up placement of shares.

The business was previously known as Melco Crown (Philippines) Resorts before being rebranded in late 2016 after Australia’s Crown Reports sold the bulk of its parent’s shares through two separate block trades.

Based on the implied valuation of $782 million, Melco is taking the unit private for about 5.7 times enterprise value/ebitda as of the end of last year. That is significantly cheaper than most of the world’s gaming stocks including its local rival Bloomberry, which is trading at 10 times EV/Ebitda, while the parent itself is trading at 10.4 times.

As it stands, the proposed take-private is a huge blow to the Philippines’ ambitions to develop Manila as a gaming hub in Southeast Asia. If the take-private is successful, there will be just two casino stocks available to public investors on the local stock exchange, namely Bloomberry and Travellers International, the respective operators of Solaire Resort & Casino and Resorts World Manila.

The Philippines had hoped to boost its tourist economy off the back of the kind of wealthy, high-rolling gamblers — largely from China — who helped make Macau the world's richest gambling destination. However it faces rising competition, with Macau and Singapore still thriving and the likes of Japan and South Korea also planning major casino development.

Meanwhile as Melco takes the Manila operation back into its own hands, it is taking one of its Macau locations public through an initial public offering in New York.

Melco said it had applied to the New York Stock Exchange to list shares in Studio City, a retail and entertainment resort located in Macau’s Cotai strip of which it owns 60%. The remaining stake is held by a joint venture between hedge funds Silver Point Capital and Oaktree Capital.

Details of the New York IPO are yet to be finalised.

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