Macau and Philippines casino operator Melco Resorts and Entertainment Ltd is acquiring all of its parent’s interest in the entity developing the City of Dreams Mediterranean casino resort (pictured in an artist’s rendering) in the Republic of Cyprus.
Melco Resorts gave the news in a Monday filing to Nasdaq in the United States.
It added that “all the piling work on the main structure of the City of Dreams Mediterranean project has been completed”.
Melco Resorts said it would acquire the 75-percent interest held by Hong Kong-listed Melco International Development Ltd in ICR Cyprus Holdings Ltd, a consortium involving local Cyprus firms.
Melco International is the majority shareholder of Melco Resorts. Both firms are led by casino entrepreneur Lawrence Ho Yau Lung.
Under the deal, representing a consideration value of approximately US$375 million, Melco Resorts will acquire the ICR Cyprus shares in exchange for 55.5 million ordinary units of its own shares.
The holding in question is said to be equivalent to approximately 18.5 million American depositary shares of Melco Resorts, or 4.0 percent of Melco Resorts’ outstanding shares as of Monday.
The proposed new shareholders’ agreement contemplates “certain commercial and financial arrangements” under which Melco Resorts will “provide certain corporate-level management services to the ICR group for a fixed amount of EUR2 million [US$2.3 million] per annum”, and have the right to receive “an allotment of preference shares in the gaming-licence-holding subsidiary of ICR Cyprus which will provide the right to a preferential dividend, among other terms”.
Melco Resorts’ filing said the deal was subject to “customary closing conditions”, including the approval by “certain Cyprus regulatory authorities”, and the execution of a new shareholders’ agreement by Melco Resorts and the shareholders wth the remaining 25 percent of ICR Cyprus, and of the ICR Cyprus entity itself.
Dilutive but with potential
Brokerage Sanford C. Bernstein said in a Monday note: “The transaction is slightly dilutive to Melco Resorts’ equity holders in the near-term.”
But the institution added: “In the longer-run – post scheduled opening and ramp up of City of Dreams Mediterranean – the economics would make sense. The transaction also expands Melco Resorts’ footprint beyond Asia.”
Analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu further noted: “The City of Dreams Mediterranean project is targeted to cost US$650 million and generate return on investment of 20 percent to 25 percent per management. In our view, with the projected free cash flow generation, should the City of Dreams Mediterranean project require further equity financing, the amount will not be material.”
ICR Cyprus, through a subsidiary, holds a 30-year casino gaming licence for the Republic of Cyprus, the ethnic Greek portion of that Mediterranean island.
The licence started from June 2017 and the first 15 years are exclusive to ICR Cyprus, according to Monday’s filing.
ICR Cyprus is currently operating one temporary casino and two satellite casinos in Cyprus, with two more satellite casinos expected to open this year. The temporary casino in Limassol opened in June 2018 – the first such licensed casino venue in Cyprus. It will continue to operate until the opening of City of Dreams Mediterranean in Limassol, scheduled to 2021, according to its promoter.
Monday’s filing noted: “Upon completion, City of Dreams Mediterranean is currently expected to have a 7,500-square-metre [80,729 sq feet] gaming area comprising over 100 tables and over 1,000 state-of-the-art slot machines, a five-star hotel with approximately 500 rooms, world-class international restaurants and cafeterias, an outdoor amphitheatre and MICE [meetings, incentives, conferences and exhibitions] and other facilities.”
Melco Resorts announced in May that it was paying US$1.2 billion to acquire a 19.99-percent stake in Australian gaming operator Crown Resorts Ltd. In a press briefing earlier this month, Mr Ho said that Melco Resorts would still have a “manageable” leverage ratio following the Crown Resorts deal.
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