IPO to go forward “as market conditions permit”
Studio City International Holdings Ltd., which controls the Studio City casino resort in Macau’s Cotai district, is planning a potential initial public offering in the United States, media sources report.
The news has analysts at brokerage Sanford C. Bernstein scratching their heads. The Hong Kong-based team says a potential IPO “does not make much sense,” according to GGRAsia. “At this stage, there is limited information on the rationale or the potential economics of any transaction.”
Analysts Vitaly Umansky and Zhen Gong suggested two possible reasons for the move. Either New Cotai is “looking to sell and wants a price validation” or “pressure to begin work on Phase II” of Studio City at a time when New Cotai doesn’t want to put in new capital into the property.
Studio City International Holdings “submitted on a confidential basis to the U.S. Securities and Exchange Commission a draft registration statement for a possible IPO of American Depositary Shares representing ordinary shares of Studio City International Holdings,” the firm said in response to the news. “The number and dollar amount of ADS proposed to be offered and sold have not yet been determined.”
Melco holds a 60 percent controlling stake in Studio City International Holdings. The remaining 40 percent is held by New Cotai Holdings LLC, an entity controlled by United States-based investment firms Silver Point Capital LP and Oaktree Capital Management LP. Studio City International Holdings said “the proposed IPO is expected to commence as market conditions permit” in keeping with regulatory requirements.
In December a spokesperson for Studio City’s majority owner told GGRAsia the firm was “still in the early stages of planning” the development of the “remaining one-third” of the land where Studio City was built.
The Sanford Bernstein team noted that “the IPO, if it were to happen, does not make much sense to us. At this stage, we do not foresee Studio City receiving an adequate valuation based on the property’s current performance and structure. If it were to go ahead, the pricing would be at a substantial discount.”
In September 2016, Fitch Ratings said the most likely outcome for Studio City was for Melco Resorts to buy out New Cotai. “Studio City’s performance would likely be optimized if it were wholly owned by Melco Resorts due to the greater flexibility in marketing and table allocation,” said Alex Bumazhny, Fitch’s senior director for gaming, lodging and leisure. In June 2016, Melco Resorts CEO Lawrence Ho said he was in “no rush” to buy out the minority partners in Studio City because of divergent valuation expectations between the two parties.
The $3.2 billion Hollywood-themed resort, complete with a Batman virtual-reality ride and other movie-related attractions, opened in 2015 in Macau’s Cotai district. For the quarter ended June 30, its net revenue was $332.1 million compared to $183.8 million in the prior year. EBITDA was $80.7 million compared to $24.6 million in the prior year. The boost was attributed to “commencement of rolling chip operations in November 2016 and better performance in the mass market table games segment,” said Melco Resorts. Rolling chip volume totaled $4.7 billion for second quarter.
Total non-gaming revenue at Studio City for the period was $48.6 million, down from $51.1 million in the second quarter of 2016.
