Stockbroker Sanford C. Bernstein Ltd says the initial public offering (IPO) of shares in the Studio City casino resort (pictured) in Macau could serve to boost the share price of its majority owner, Melco Resorts and Entertainment Ltd. In a note issued on Tuesday, Sanford Bernstein said the IPO could set the stage for Melco Resorts to purchase the outstanding minority interest in Studio City.
Melco Resorts owns the majority stake in Studio City International Holdings Ltd, about 53 percent, down from the 60 percent it owned prior to the company’s October 18 float. The shares rose as much as 48 percent on their trading debut in New York.
The note written by analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu said the IPO was a “positive event” for Melco Resorts. “The IPO effectively reduced net debt at Studio City, while Melco Resorts maintained majority ownership and bought into Studio City with inexpensive debt.”
It added: “If Melco [Resorts] were to eventually buy out minority interest in [Studio City], the IPO and public market trading price also help set a price threshold.”
The IPO of shares in Studio City International Holdings saw 28.75 million American Depositary Shares (ADS) listed under the ticker MSC. The Studio City ADS were offered at US$12.50 apiece.
Sanford Bernstein said that, in effect, Melco Resorts sold 41.3 percent of its equity and raised about US$410 million after the greenshoe option was exercised. A greenshoe option is a clause in the listing arrangements that sees the underwriting banks buy an extra 15 percent of the shares at the offer price that it can sell back to the owners. This “over-allotment option” is used to stabilise a share’s price at IPO.
The stockbroker’s note said only about 23 percent of the proceeds were made from the investing public. The rest of the money was put in by Melco Resorts and affiliates of New Cotai LLC; a private company controlled by U.S.-based investment firms Silver Point Capital LP and Oaktree Capital Management LP.
With the IPO complete, the float values Studio City at about US$2.2 billion. The transaction has provided New Cotai another step towards monetising its interest in the Studio City casino resort and offers a potential path for Melco Resorts to acquire Studio City outright, the brokerage stated.
Melco Resorts controls and operates gaming and hospitality operations in Manila and Macau. In its most recent financials, for the third quarter, published earlier this month, profit fell 91.7 percent in year-on-year terms. The company made US$9.60 million, compared to nearly US$115.9 million in the corresponding period last year. Net revenue for the third quarter was US$1.2 billion, down 11.4 percent from nearly US$1.4 billion in the corresponding period last year.
