Macao float a 'Wynn-win' for Las Vegas Sands?
Updated: 2009-08-07 07:16
(HK Edition)
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HONG KONG/LOS ANGELES: With Las Vegas struggling, investors keen to place bets on casino companies will plunk their money down on US casino archrivals Las Vegas Sands and Wynn Resorts IPOs in Hong Kong for a stake in Macao, the world's biggest gambling market.
Their initial public offerings appeal on several levels. They will be among only a handful of "pure plays" in the lucrative Macao gaming sector; the others are Melco Crown Entertainment, Galaxy Entertainment Group and SJM Holdings.
That gives investors a chance to confine their exposure to Macao, unburdened by both companies' struggling Las Vegas operations. Gaming companies in Las Vegas are fighting uphill battles amid the economic downturn and a glut of new casinos.
Sands, the world's most-valuable casino company, could tap the Hong Kong IPO market as early as this month, hoping to raise up to $3 billion for some of its Macao assets.
Wynn, the world's No 2 casino powerhouse, is following suit, planning to raise up to $1 billion by the fourth quarter.
Of the two, Wynn's offering is a better bet compared with debt-heavy Sands, due to Wynn's lower debt levels, good track record and minimal project commitments, analysts said.
"Wynn has a very premium brand name; it might be more favorably received," said Sanford Bernstein analyst Janet Brashear. "If the IPO goes first and it's successful, then it will benefit Las Vegas Sands too."
The IPOs are coming to market at a time when Hong Kong's stocks are rallying and analysts are forecasting Macao will recover faster than Las Vegas.
After dropping 21 percent in the first three months of the year, Hong Kong's benchmark Hang Seng Index has risen about 81 percent since its lows in March, making IPOs a more attractive proposition.
Macao's gross gaming revenues are set to rise 11 percent year-on-year in the fourth quarter, according to BNP Paribas.
Most analysts are putting their money on Wynn.
"The Wynn IPO is a war-chest maneuver. They're very opportunistic about raising money when money is available," said Sanford Bernstein analyst Janet Brashear."
It is estimated that the ratio of net debt to EBITDA for Wynn will be 4.6 by the end of 2009, much lower than Sands' 10.8, according to a report by JP Morgan.
Sands, reflecting differences in the two companies' strategies, draws a mostly mass-market crowd. This brings high margins, because "junkets," which bankroll VIP gamblers, siphon off about 40 percent of a casino's profits in commissions, Brashear said.
All that said, exposure to the world's hottest gambling market will not come cheaply for investors.
Brashear estimated that the IPOs could be priced at 10 to 12 times enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA), higher than the multiples of 6 to 8 for the companies' US shares.
And, as one analyst pointed out, a bet on these two casino listings could prove to be, well, a bit of a gamble.
Reuters
(HK Edition 08/07/2009 page3)