GGRAsia – Melco, Studio City on SEC list of firms facing delisting risk

Melco, Studio City on SEC list of firms facing delisting risk

Apr 13, 2022 Newsdesk Latest News, Macau, Top of the deck

The United States’ Securities and Exchange Commission (SEC) has placed on Tuesday (April 12) casino resort operators Melco Resorts and Entertainment Ltd and Studio City International Holdings Ltd on its provisional list of Chinese companies at risk of being delisted from the U.S. bourses.

Melco Resorts is listed on Nasdaq, and Studio City International Holdings on the New York Stock Exchange. Both companies have until May 3 to dispute SEC’s identification under the Holding Foreign Companies Accountable Act (HFCAA), according to the SEC’s notice.

Melco Resorts – led by Lawrence Ho Yau Lung – runs casinos in Macau, the Philippines, and the Republic of Cyprus. Melco Resorts is the majority-owner of Studio City International Holdings, which runs the Studio City casino resort in Cotai, Macau.

The U.S. Holding Foreign Companies Accountable Act requires audits be conducted by firms subject to inspection by the U.S. Public Company Accounting Oversight Board (PCAOB). The PCAOB might determine that it is unable to inspect or investigate completely a registered public accounting firm “because of a position taken by an authority in a foreign jurisdiction,” according to the HFCAA.

In a statement sent to GGRAsia on Wednesday, Melco Resorts said it was aware that the company and Studio City International Holdings had been identified by the U.S. SEC under the HFCAA.

“Both Melco and Studio City have previously disclosed that their auditors, the independent registered public accounting firm that issued the audit report included in their annual reports filed with the SEC, are in a jurisdiction currently listed as not being able to be fully inspected by the PCAOB, and thus the identification was expected,” read the statement.

“Melco and Studio City will continue to closely monitor developments and explore options in relation to the HFCAA,” it added.

Melco Resorts and Studio City International Holdings confirmed in their respective 2021 annual reports issued in March that they had been informed that their respective auditor – Ernst & Young Hong Kong – was “subject to the determinations that the PCAOB is unable to inspect or investigate completely.”

“Our ADSs [American depositary shares] may be delisted and our ADSs and shares prohibited from trading in the over-the-counter market under the Holding Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in Hong Kong,” both Melco Resorts and Studio City International flagged in their respective latest annual reports.

“Under the current law, delisting and prohibition from trading on a national securities exchange and in the over the-counter market in the U.S. could take place in 2024,” stated the two companies.

“Whether the PCAOB will be able to conduct inspections of our auditor before the issuance of our financial statements … for the year ended December 31, 2023, which is due by April 30, 2024, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control,” stated the two companies in their respective reports.

Brokerage Sanford C. Bernstein Ltd said in a March memo that there was “no near-term risk of any delisting” of Melco Resorts shares in the U.S. “However, the issue will need to be resolved for the Melco Resorts and other American depositary shares issuers to be in compliance prior to 2024,” wrote analyst Vitaly Umansky.

The institution said: “Chinese and U.S. authorities have been in discussion for some time on how to potentially resolve the PCAOB audit issue.” But, it added, if “no agreement occurs, the solution would be for Melco to do a listing on the Hong Kong Stock Exchange or to potentially merge” with its parent company, Hong Kong-listed Melco International Development Ltd.

(Updated at 6.45pm, Apr 13)