Operator News
China – Analysts confused by Studio city IPO
By Phil - 15 August 2017
In a move that has confused analysts, Melco International will lessen its ownership in its Macau casino Studio City by floating part of its shares in the US.
Its motives are not yet known although analysts believe it could be to raise money to complete phase 2 of the Macau casino.
Having seen its joint venture partnership with Crown Resorts crumble following the Australian operators much publicised problems in China, Studio City’s ownership is split with 60 per cent owned by Melco Resorts with New Cotai, a privately owned investment company, owning the other 40 per cent of Studio City International Holdings.
“Following completion of the proposed spin-off, the company’s interest in Studio City will be reduced although it is intended that the company will remain as Studio City’s majority shareholder after the IPO,” Melco International said.
Analysts Vitaly Umansky and Zhen Gong from brokerage Sanford C Bernstein said: “The IPO, if it were to happen, does not make much sense to us at this stage (from the perspective of Melco). It further creates complexity for Melco, a company which is already complicated by Macau standards. The IPO filing allows banks/company to approach investors to gauge interest. If a valuation is palatable, New Cotai may be willing to sell secondary shares in the IPO. Alternatively, Melco may be willing to pay a similar price to acquire New Cotai’s interest. An IPO process may be way to set a valuation – either to actually raise new capital that dilutes New Cotai or to get a view on third party valuation and have Melco dilute New Cotai.
“At this stage, we do not foresee Studio City receiving an adequate valuation based on the property’s current performance and structure. If it were to go ahead, the pricing would be at a substantial discount to Melco valuation in our view.”
