Philippine re-IPO

Philippine casino play launches re-IPO of up to $227 million

Bloomberry Resorts is offering investors a first chance to buy into the Solaire Manila casino resort, which is due to open in the first quarter of 2013.

Bloomberry Resorts Corp, which is due to become the first company to open an integrated casino resort in Manila’s new Entertainment City gaming hub, yesterday kicked off a fully marketed top-up placement of between Ps7.7 billion and Ps9.7 billion ($180 million to $227 million).

The company, which is controlled by Philippine businessman Enrique Razon, obtained a backdoor listing on the Philippine Stock Exchange late last year following a reverse takeover of Active Alliance, a former manufacturer of printed circuit boards that at the time of the takeover was essentially a listed shell company. The name was changed to Bloomberry in February this year.

This will be its first share sale since the backdoor listing and the first time public investors will really be able to buy into the company since it transformed itself into a casino-play in the making. The company holds one of the four licenses to build integrated tourism resorts in Entertainment City that were awarded in 2009 and started construction on its Solaire Manila project in July last year. Phase one, which will include 300 gaming tables, 1,200 slot machines, one 500-room hotel, seven specialty restaurants and a number of other food and beverage outlets, is scheduled to open in the first quarter of 2013.

Bloomberry currently has a free-float of 8.8%, but the majority of that is tied up with just one owner. This deal will increase the float to 19.1%, or 20% if the greenshoe is exercised in full, and in that sense this is really a re-IPO of the company. The marketing is also more akin to an initial public offering with analysts having spent a couple of weeks on investor education before yesterday’s launch and the management is now embarking on a full roadshow. The price will also be set within a fixed range, as opposed to at a discount to the existing share price.

Sources say the company is offering 1.179 billion shares at a price between Ps6.55 and Ps8.25 apiece. The base deal is equal to 11.3% of the enlarged share capital. There is also a 10% greenshoe that could boost the deal size to 12.2% and the total proceeds to as much as $250 million.

As it is a top-up placement, technically the shares on offer are secondary shares that are being sold by Prime Metroline, a company wholly owned by Razon. However, Prime Metroline will then subscribe to the same number of new shares at the same price to ensure that all of the money will end up with the company.

The proceeds will be used to cover the costs related to the construction of phase one of Solaire Manila, which are estimated at about $720 million.

The price range is significantly below the current share price — yesterday the stock closed at Ps13.08 — but the latter is viewed to be overvalued due to the thin trading volumes, and hence deemed to be largely irrelevant. The price has been edging gradually lower as the share sale has been drawing closer, though, and in the past couple of weeks it has more than halved from around Ps30.

Instead investors will be looking at Bloomberry on an enterprise value-to-Ebitda basis and in relation to its gaming peers in other markets. According to sources, the price range pitches the company at a 2014 EV/Ebitda multiple of 6.3 to 7.8 times. This compares with 8.7 times for Galaxy Entertainment, 9.6 times for Sands China, and 10.4 times for Wynn Macau for the same year. One source noted that it makes sense that Bloomberry comes at a discount to the three Macau casino operators since they are all generating earnings already, while Bloomberry will only have a full-year of Ebitda in 2014. And Macau is, of course, also located next door to China and its 1.4 billion potential customers.

That said, MGM China, which listed in Hong Kong in June last year, currently trades at a 2014 EV/Ebitda multiple of 7.5 times.

And Bloomberry is optimistic about the growth prospects for the Philippine gaming market, which is expected to be driven by GDP growth, rising per capita incomes and increasing remittances from overseas workers. In 2011 the country generated $1.3 billion of gaming revenues — well below the $33.5 billion generated in Macau, but up 35% from the year before.

The Metro Manila area currently has six casinos, including Resorts World Manila, which opened in 2009 and is the first large-scale integrated casino resort in the Philippines. It is owned by Travelers International Hotel Group, which is a joint venture between the Philippine-based Alliance Global Group and Malaysian casino and entertainment group Genting, and currently has two hotels (with another one under development), 300 gaming tables and 1,000 slot machines.

Travelers also owns one of the licences for Entertainment City and is due to open an integrated resort there by mid-2015.

Investors tend to like gaming stocks as they offer a leveraged bet on consumption. And the Philippines is a market that is driven very much by the consumer story.

The bookrunners were said to have had some “soft” commitments from anchor investors before launch and one source said the deal was covered after the first day of marketing in Asia yesterday. This, together with the fact that the Philippines is the best performing market in Asia this year with an 18.1% gain, should help give the bookbuilding momentum over the next few days. Investors would also not have missed that GT Capital gained 8.1% in its trading debut last Friday, when it became the first Philippine company to list this year. The conglomerate, which raised $438 million from its IPO, added slightly to those gains yesterday in an otherwise falling market.

One challenge will be to convince investors to put money into a company that won’t have any revenues until next year — indeed, investors have largely shunned away from a number of greenfield or early-stage mining companies that have listed in Hong Kong so far this year. However, the fact that the company is controlled by Razon should help mitigate some of those concerns. The way he has grown International Container Terminal Services from a company operating one port in Manila into a global player with interests in 23 ports and container terminals around the world will not have escaped investors that are at all interested in the Philippines. One source noted that ICTS is also a regular recipient of corporate governance awards in the Philippines.

To back him up, the company has appointed a stellar management team and has also enlisted Las Vegas-based Global Gaming Asset Management GGAM as an adviser on the design and construction of Solaire Manila. GGAM has extensive international gaming expertise as well as long standing gaming relationships with independent gaming promoters and will also manage the casino once it opens.

The order books for the share sale will close on May 3 and the final price is expected to be determined after the close of US trading that day.

CLSA and UBS are joint global coordinators and bookrunner.

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