Yet another Macau VIP gaming promoter is to gain access to the Hong Kong equities market via an already listed firm with no previous recorded involvement in the casino industry.
Shares of Sinogreen Energy International Group Ltd, a firm trading in silicon rubber keypads, rose by nearly 79 percent between Friday and 2pm on Tuesday after it said that Jack Lam Yin Lok, a veteran of the Macau VIP business, would – along with British Virgin Islands entities called Creative Cosmo Ltd and New Elect International Ltd – buy 325 million new shares in Sinogreen for a total amount of HKD113.8 million (US$14.7 million).
The purchase at HKD0.35 per share – a 94.31 percent discount to an agreed closing price of HKD6.15 per new share taking account of capital adjustments – amounts to 65.89 percent of Sinogreen’s enlarged share capital.
Sinogreen said Mr Lam’s “extensive experience and business network in the gaming industry, will help the group gradually diversify its business into [the] Macau gaming market…”
In the early years of the Macau casino market’s liberalisation after 2002, Mr Lam’s Jimei Group Ltd was widely regarded as the biggest junket operator in the territory.
Currently Jimei runs Jimei Casino (pictured) next door to the Grand Lapa hotel on Macau peninsula, as well as junket rooms in seven other Macau properties including Wynn Macau, Sands Macao and City of Dreams, according to Jimei’s website. Jimei also operates Fontana Leisure Parks & Casino at Clark Special Economic Zone in the Philippines.
Sinogreen will also issue to Mr Lam notes which can be converted to 159 million shares at HKD0.35 each. The total amount payable for the subscription of the convertible notes is HKD55.65 million.
For the rest of the shares, Mr Lam will be required to make an unconditional mandatory cash offer, involving HKD35.24 million.
Total proceeds from Sinogreen’s exercise are put at HKD164.40 million, of which HKD96.90 million will be used to start a gambling junket business in Macau, HKD37.50 million to repay debt and HKD30 million for general operating purposes.
The Sinogreen deal follows a string of similar announcements this year – at a time when competition among junkets for Chinese high rollers in the Macau market appears to be intensifying, Chinese government scrutiny of wealthy gamblers has been stepped up, and junket operators look to invest previous profits into new operations offshore.
First Natural Foods Holdings Ltd – a previously dormant Hong Kong-listed company – said in March that it had completed a HKD400 million investment in Macau junket room investor Hengsheng Group Ltd.
First Natural has since changed its name to Imperial Pacific International Holdings Ltd. This month it was announced that a unit of Imperial Pacific International had won a casino licence on the Pacific island of Saipan. The firm’s shares have risen 4,809 percent in the past 12 months according to Bloomberg data.
The trend of using existing listed companies to link Macau junket operations with public investors dates back to at least 2007. That year Neptune Group Ltd was created out of an existing Hong Kong-listed business called Massive Resources International Corp, which previously traded electrical equipment and securities.
Massive Resources paid HKD100 million for a firm which in turn owned 20 percent of another firm that in its turn had the rights to 0.4 percent of the rolling turnover of a junket operator called Hoi Seng, Massive Resources said in a filing in May that year.
In January this year, International Entertainment Corp – a Hong Kong-listed company that did have some previous documented connection to the Macau gaming industry via the leasing of hotels for “casino and ancillary leisure and entertainment operations” – announced it was interested in buying a 70-percent economic interest in Suncity International Holdings Ltd, an entity associated with one of Macau’s biggest junket brands.
In its annual report dated June 20, and filed on July 18, International Entertainment – controlled by the family of Cheng Yu Tung, a long-time business associate of SJM Holdings Ltd’s founder Stanley Ho Hung Sun – said that particular deal has not yet been concluded.
Not all tie ups with Hong Kong listings have ended in long term success in the junket sector.
On June 30 this year Sino Credit Holdings Ltd announced it was pulling out of Macau’s gaming industry to concentrate on financial services in mainland China.
Sino Credit, formerly known as Dore Holdings Ltd, had paid via associated entities HKD307 million in early 2007 to buy shares in Teem Foundation Group Ltd, a Hong Kong-listed timber and carpentry contractor.
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”We believe the positive stance from China towards Macau would help market sentiment in the near term despite limited short term benefit to the [casino] gross gaming revenue”
Kenneth Fong, Lok Kan Chan and Rebecca Law
Analysts at Credit Suisse