Studio City International Holdings Ltd, the company that controls Macau’s $3.2 billion Studio City casino resort is making plans for a potential initial public offering (IPO) in America. The company recently sent in a draft registration report to the U.S. Securities and Exchange Commission outlining a plan for a potential IPO of American Depositary Shares (ADSs) that will represent the ordinary shares of the company.
IPO Will Take Place In Right Market Conditions
The draft registration did not specify the amount of ADSs that are expected to be released and sold nor the proposed share price. The company released a statement earlier this week stating that the potential IPO will take place when market conditions are good and will be carried out in full compliance with the necessary regulations.
Studio City International Holdings Ltd is owned by Hong Kong based casino tycoon Lawrence Ho’s Melco Resorts and Entertainment Ltd who controls 60 percent of the company while the remaining 40 percent is owned by New Cotai Holdings LLC. American investment firms Oaktree Capital Management LP and Silver Point Capital LP own New Cotai Holdings LLC.
There were rumors in late 2016 that Melco Resorts and Entertainment was looking to buy-out New Cotai Holdings LLC and take full ownership of Studio City. Melco Resorts is already listed on New York’s Nasdaq stock exchange and analysts believe that Studio City would benefit significantly if Melco Resorts took full ownership as it would get better table allocation and obtain greater marketing leverage in Macau. However Lawrence Ho stated in June 2016 that Melco Resorts was in no rush to buy-out its minority partners since there was a valuation gap in expectations between the partners.
Analysts Question Logic Behind IPO
There are a few brokerage firms and gaming analysts who question the logic and timing behind the proposed IPO in America. Sanford C. Bernstein Ltd analysts Zhen Gong and Vitaly Umansky say that this potential IPO could be because of two reasons. The first is because the time has come for Phase 2 of Studio City to commence and New Cotai needs to raise new capital and the second is because New Cotai needs a current market price validation as it has decide to dispose of its 40 percent stake.
Studio City has had troubles in the past in securing sufficient financing during its first phase. The project was delayed for a number of years after its original investors could not reach an agreement on funding after the global financial crisis hit in 2007. The investors once again need to pump in a significant amount of capital to proceed with Phase 2 and there could be underlying concerns amongst investors once again.
However, the brokerage firm went on to say that if the IPO took place, it was highly unlikely that Studio City would get a proper price validation based on the current structure and performance of Studio City. The pricing obtained from a potential IPO would come at a substantial discount.
Strong Second Quarter Results
Macau’s casino industry has recovered since August 2016 and casino operators have reported a slow turnaround in gross gaming revenues. Studio City generated net revenue of $332.1 million during the 2nd quarter of 2017 when compared to the $183.8 million it generated in the same quarter in 2016. The total amount of non-gaming revenues dropped in the second quarter of 2017, as the property recorded revenues of $48.6 million compared to the $51.1 million it brought in during the same quarter in 2016.
Second quarter revenues for Studio City’s adjusted property earnings before interest, taxation, depreciation and amortization (EBITDA) stood at $80.7 million compared to the same quarter in 2016 when the EBITDA was at $24.6 million. The rolling-chip volume at the casino during the second quarter of this year stood at $4.7 billion and the win rate was a 3.3 percent.
Melco Resorts stated that the strong performance in the second quarter was due to the fact that rolling chip operations had commenced and also because mass market tables performed well. Studio City is expected to start work on Phase 2 of its development in the near future as nearly one-third of its area needs to be developed.

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