GGRAsia – SJM to acquire Oceanus building for US$243mln in bonds

SJM to acquire Oceanus building for US$243mln in bonds

May 27, 2022 Newsdesk Latest News, Macau, Top of the deck

Macau casino operator SJM Holdings Ltd says it has an agreement to take full control of the Oceanus building (pictured), near Macau’s Outer Harbour Ferry Terminal. The group runs Casino Oceanus at the complex, which it had been leasing from a unit of its majority shareholder, Sociedade de Turismo e Diversões de Macau SA, also known as STDM.

The total consideration for the deal is just below HKD1.91 billion (US$242.8 million), and “shall be entirely satisfied” by the issue of convertible bonds by a unit of SJM Holdings to STDM, said Hong Kong-listed SJM Holdings in a Thursday filing.

The document said the amount represented the market value of the Oceanus non-gaming area, defined as HKD516 million, and the value of the Oceanus gaming area, described as HKD1.39 billion, “as determined by an independent professional valuer.”

In the filing, SJM Holdings said the transfer was in order to meet the requirement of Article 40 of Macau’s existing gaming law, “and in accordance with its gaming concession contract.” SJM Resorts Ltd, the local unit of SJM Holdings, is the concession-holding entity.

Under the existing framework, the city’s casino operators are obliged automatically to revert to the Macau government, free of charge and free of any encumbrances or burdens, their respective gaming venues and related equipment, without compensation, at the end of the concession period.

SJM Holdings said the agreement for the transfer of ownership followed discussions with the Macau government in relation to the extension of the group’s gaming concession to December 31, 2022, and in order to “enable the group to fulfill the relevant requirements and allow the group to qualify for the application of the extension.”

Macau’s six casino operators had applied to the Macau government in March for an extension until December 31 of their existing rights, as made feasible by the local authorities. The current licences are due to expire on June 26.

Preparing for retender

The filing stated: “The group entered into the transfer agreement to meet the property ownership requirement and to enable SJM Resorts to be eligible to tender for a new gaming concession contract for a further 10 years.”

It added: “The company considers the transfer to be imperative as it enables SJM Resorts to operate both gaming and non-gaming businesses within Oceanus in a synergised manner which are complementary to one another.”

Oceanus is a four-story building comprising approximately 39,242 square metres (422,397 sq. feet). Approximately 34.6 percent of the complex’s area is being used to operate the casino business, whilst the remaining area represents common areas, food and beverage outlets, and retail shops.

Oceanus has been leased by the unit of STDM to SJM Resorts. The latter company paid rents of approximately HKD80.6 million and HKD43.0 million for the years of 2021 and 2020, respectively.

As part of the deal, the seller agreed to provide a letter of commitment for reversion of the Oceanus gaming area to the Macau Government as required under the concession contract. “The company expects that the letter of commitment shall be delivered to the Macau government on or before 15 June 2022,” SJM Holdings added.

The convertible bonds will be issued by Champion Power Global Ltd, a subsidiary of SJM Holdings. The Hong Kong dollar-denominated 2.0-percent per annum bonds are due on the fifth anniversary of the first issue date. The bonds will be convertible into fully paid ordinary shares of SJM Holdings, at an initial conversion price of HKD4.07 per share.

Following full exercise of conversion rights of the convertible bonds, STDM’s stake in SJM Holdings could rise to 58.1 percent, according to the filing.

“The issue of the convertible bonds allows the group to preserve its cash resources in the challenging business environment in Macau due to travel restrictions amid the continuing Covid-19 pandemic and provides protection to the independent shareholders from immediate shareholding dilution,” said the Hong Kong-listed firm.