The IPO for Las Vegas Sands' Macau assets, set to be the world's seventh-largest this year, is likely to struggle in its market debut next Monday on high valuations and waning appetite for casino stocks.
The highly anticipated listing of Sands China, nearly two months after rival Wynn Macau's IPO, will test investors' appetite for casino shares by offering a debt-laden firm that promises a strong growth outlook in Macau, the world's biggest and fastest-growing gambling market.
The IPO, which raised $2.5 billion, is the latest in a string of share sales across Asia as companies look to take advantage of a broad stock market rally that is now showing signs of fatigue.
Sands China shares are expected to trade lower on their debut day, according to an average forecast in a Reuters survey of seven brokers. Two said it could fall 10 percent from its HK$10.88 issue price, which was already at the bottom of the range that Sands was seeking.
It is a risky bet on increasing competition and the firm itself is high in gearing, said Alex Wong, a director from Ample Finance Group.
It won't be able to repeat the performance of Wynn. The glorious moment for casino stocks has passed.
Retail investors, who make up a tenth of the subscriber base, would steer clear of Sands China after lackluster performance for Wynn Macau's stock, which has fallen 7.6 percent below its IPO price of HK$10.08, brokers and analysts said.
Wynn Macau shares ended 6 percent higher at HK$10.70 on October 9 in their trading debut but they have dropped since then, and were at HK$9.31 midway through the Hong Kong trading day on Friday.
CHINESE WOULD SWIM OVER
Sands, founded by 76-year-old billionaire Sheldon Adelson, was the first U.S. casino operator to cash in on the Chinese passion for punting when it entered Macau in 2004 after the government opened the gambling market to outsiders.
Macau, the only part of China where gambling is legal, generated record October gambling revenues, even after Beijing curbed travel to the former Portuguese enclave through visa restrictions on travelers from nearby Guangdong province.
They can't stop them -- they would swim over if they had to, Adelson, the son of a Boston cab driver, said once.
But investors are more wary, since Macau casino stocks are pegged heavily to any news flow, brokers said.
I don't see any policies that are favorable for this stock, said Conita Hung, head of equity research at Delta Asia Financial. The IPO retail response has been disappointing.
Investors are also leery about investing in an IPO in which a huge chunk of the proceeds would be used to pay down debt and shareholders' loans, along with financing its other casino projects, said Ben Kwong, chief operating officer at KGI Asia.
Las Vegas Sands' major project is the $5.5 billion Marina Bay Sands in Singapore, which is due to open in the first quarter of 2010.
Sands China had about $4 billion in long-term borrowing commitments as of September 30, according to its prospectus.
Citigroup and Goldman Sachs are the joint global coordinators for the offer. The banks also are bookrunners for the deal, along with BNP Paribas BNP.PA, Barclays and UBS.
On a 2010 enterprise value to earnings before interest, tax, depreciation and amortization ratio (EV/EBITDA), Sands China trades at 13.5-15 times, versus Wynn Macau's about 14 times, according to analysts.
My clients didn't apply for Sands China, but they did apply for Wynn Macau, said a director with an Asian brokerage. Valuations are too high and the gambling industry in Macau is saturated.
(Additional reporting by Deena Beasley in LOS ANGELES and Donny Kwok; Editing by Lincoln Feast)