The Heat is at home for US Casinos

The fun is back in Macau. With the rising stock markets in the East,
US gaming companies are set to cash in some of their chips in Macau. It is timely now to sell or float assets in the Chinese gambling enclave so as to prop struggling parent businesses back home in Las Vegas.

These debt-laden US casino operators are betting on a rally in stock prices and signs of recovery in Macau's gaming market to spur interest from investors who have endured a volatile and mostly brutal year in gambling stocks.

Sources say Wynn Resorts is getting ready to dust off the initial public offering plans it started last year for its Macau unit in what some say could be a more than US$2 billion (RM7 billion) offering.

Las Vegas Sands is also preparing an initial public offering of its Macau division, having hired Goldman Sachs to run the offer.

Meanwhile, speculation is building that MGM Mirage, under pressure from US gambling regulators and saddled with about US$14 billion in debt, may sell its stake in its Macau joint venture.

Malaysian gaming group Genting, which recently bought a US$100 million stake in MGM and has been eyeing opportunities in Macau, is seen as a potential buyer.

What's fuelling the activity is the US casino operators' aim to monetise Macau assets in order to support struggling operations in Las Vegas, bankers and analysts say.

"What I think is driving the speculation at this moment is the financial distress that a lot of the parent organisations standing behind some of the assets in this market are facing," Adam Rosenberg, the global head of gaming for Goldman Sachs, said at a global gaming conference in Macau last week.

"As they've said, they're considering all alternatives to deal with their operational and financial situations."

The time to act is now, say analysts and bankers, as competition on Macau's Cotai strip is only picking up. City of Dreams, a mega casino resort by Melco Crown, opened up this month, adding another casino operator to the mix.

After dropping 21 per cent in the first three months of the year, Hong Kong's benchmark Hang Seng Index has risen 62 per cent since its low in March, luring potential IPO candidates such as Sands and Wynn back to the market.

"The capital markets are presenting an opportunity," Andrew Zarnett, managing director at Deutsche Bank Securities, said at the same conference. "It's temporarily open, which means there's something to be done."

Share prices for most US gaming companies have bounced strongly from their March lows but are trading at a fraction of a year or two ago.

Raising equity to reduce debt may be the best way for casino firms to avoid breaching their loan covenants, analysts said.

For example, MGM's credit default swaps, which measure the protection for bonds, more than trebled in March from January, signalling how costly it could be for the firm to sell debt then.

While MGM and Wynn have already raised cash through the sale of notes or stock in the United States, the deal spotlight is strongest in Macau, which is the world's biggest gambling market and is showing signs of a faster recovery compared with Las Vegas.

A Sands offering in Hong Kong could raise up to US$1.1 billion, according to Merrill Lynch.

Wynn delayed its planned Hong Kong listing when the global financial crisis hit in the fourth quarter, bankers say. The firm had hired UBS, Morgan Stanley and Deutsche Bank for an offering aimed to raise as much as US$3 billion to help fund the firm's planned mega resort, a local newspaper said last July.

Meanwhile, analysts say Genting has been eyeing investment opportunities in Macau, even though there are only six gaming licences available and few assets up for grabs.

Genting looks best placed to buy MGM's stake, if the firm decides to sell in Macau, analysts say.

A 3.2 per cent stake in MGM, a share sale of US$425 million in Genting's Singapore unit by the family that owns the Malaysian firm and the subscription of a combined US$100 million worth of MGM's notes by Genting and its unit Resorts World have raised talk that the Malaysian gaming company is preparing to buy MGM's stake..

The New Jersey Division of Gaming Enforcement asked the state's Casino Control Commission to make MGM "disengage itself from any business association" with Pansy Ho, the US firm said in May..

"It could mean either MGM or Pansy Ho has to exit the partnership in Macau and that will create opportunities for Genting," said CLSA analyst Aaron Fischer.

MGM would be a willing seller, analysts said.

"MGM will relish the opportunity to get out of Macau," said Sanford Bernstein analyst Janet Brashear. "They need the cash and they haven't been able to succeed in the Macau market." — Reuters

The Genting foray into Macau may just begin anytime soon.