Looking ahead, looking abroad?

Nelson Moura
[email protected] Gaming analysts are divided over what immediate impact the MGM Resorts International (MGM) move to increase its share in MGM China Holdings Ltd. (MGM China) might have, but see Pansy Ho’s new share deal with MGM as a potential shift in focus to beyond the Macau market.
MGM increases its shares in its China unit from 51 per cent to 56 per cent upon purchasing part of Pansy Ho’s share in the company at a value of around US$325 million (MOP2.59 billion).
Once the deal is completed the daughter of gaming mogul Stanley Ho will see her share in MGM China decrease from 27.44 per cent to 22.49 per cent, according to a Tuesday release by MGM China.
The release states that MGM will pay Ho’s holding company Grand Paradise Macau Limited US$100 million in cash, with US$175 million in stock and US$50 million in deferred payments in lieu of the dividends she would have received for holding the shares.
Good or bad?
Analysts at Wells Fargo commented that they’re ‘not sure what MGM gains from this transaction. [The company] already has control of and consolidates MGM China, so we don’t see any immediate benefit from purchasing another 5 per cent, especially when Macau’s fundamentals are still challenged and the tone of many of our industry conversations is very glum,’ the group commented in a release.
Union Gaming analysts, while considering that the transaction will have ‘little impact’ on MGM’s consolidated leverage ratio or valuation, consider the share deal to have a ‘significant long-term upside’ following the opening of the MGM Cotai project and the stabilisation of Macau’s economy.
The opening of MGM Cotai’s US$3.1 billion property was pushed back again this month to the second quarter of next year, making it the third time it’s been postponed, as reported by Business Daily.
The share deal was described by Union Gaming analysts as ‘another signal that Macau has bottomed’, with MGM seeing an opportunity to ‘buy low, sell high’ while increasing its stake in Macau at a ‘discount’.
‘MGM Resorts is also gaining incremental exposure to Macau without incremental development risk, a key positive in our view,’ the Union Gaming analysts believe.
Looking elsewhere
As part of the deal, Pansy Ho acquired 4 million shares in MGM Resorts from Tracinda Corp – an investment vehicle of former MGM Resorts’ founder Kirk Kerkorian. This will equate to a 4.8 per cent stake in the American gaming company for Ms. Ho, in a move gaming analysts consider a sign of distrust of the local gaming market.
MGM China Holdings Limited has announced total revenue for the first quarter of the year of HK$3.6 billion (MOP3.7 billion/US$464 million), a drop of 25 per cent year-on-year, and a 31 per cent decline from the previous quarter, Business Daily reported previously.
According to Wells Fargo analysts ‘by continuing to sell down her MGM China and increase her MGM U.S. stake, Pansy Ho is arguably reducing Chinese and increasing U.S. exposure,’ in another signal the local gaming market has ‘bottomed’.
Bernstein analysts consider the move as ‘slightly negative’ since it could signal a move by Ho to begin a long-term sell down of her position in MGM China.
Wells Fargo considers that the Macau market continues to be ‘fundamentally challenged’ believing there won’t be a recovery, even after the market stabilises, ‘due to a continued policy overhang and weak Chinese economic outlook’, even with gaming offerings and supply growth continuing to increase in the next two years.