Stanley Ho's IPO will take secrecy out of Macau gambling

Jul 8, 2008 6:55 PM

by Perry Lewis | During í07, the gaming companies that mirrored their Las Vegas Strip properties with glitzy gaming establishments in Macau saw their share price skyrocket. The two best examples were Steve Wynnís Wynn Resort Ltd. (WYNN), whose shares were pushing toward the $200 level and Sheldon Adelsonís Las Vegas Sands Corp. (LVS), following closely behind.

But stories out of the former Portuguese enclave that was restored to Chinese rule a decade ago gave investors concerns. Often, these people just didnít understand the Asian market.

With reports that there may be some curtailment of visas to Chinese residents this year, especially during the forthcoming Beijing Olympics, Wall Street gamblers have been losing interest in Macau whose gambling revenues have surpassed those of the Las Vegas Strip.

In the background, throughout the rise and fall of the American interests, has been Stanley Ho, whose career as Macauís only gambling mogul spanned more than 40 years. To the surprise of many, the Macau lawmakers changed the islandís gambling laws to permit the entry of outsiders. Thus the door was opened to Wynn, Adelson, the owners of Galaxy Entertainment, and subsequently, Melco Entertainment Ltd. (MPEL), a partnership involving Stanley Hoís son, Lawrence, and James Packer, the son of the late legendary Australian gambler and billionaire Kerry Packer.

Later, another odd partnership entered the picture when Stanley Hoís daughter, Pansy, who had played a prominent role in her fatherís business enterprises, formed a relationship with MGM MIRAGE Inc. (MGM).

Through the gambling expansion in Macau, it was Stanley Ho who retained his position as the dominant player. His Sociedade de Jogos de Macau (SJM) owns 19 of Macauís 29 casinos and holds a market share reported to be upwards of 43%.

Throughout his career, Stanley Ho operated privately. He insisted that he didnít want anyone reviewing his business affairs. This position also kept the general public from benefiting from his activities as they would if his company were publicly-traded, just as the American gaming companies were.

So, surprising everyone last year, the octogenarian Ho announced that he would go forward with an initial public offering for his SJM with the stock to be traded on the Hong Kong Stock Exchange (HK).

The plans moved along nicely until his sister, 83-year-old Winnie, intervened saying that she owned a piece of the company that Stanley was denying. Straightening that matter out delayed the IPO until January. But, of course, with the credit crunch affecting stocks worldwide, the IPO again was delayed.

Finally, this week, the long-awaited IPO for Stanley Hoís SJM made his market debut. However, the more than a yearís delay cut the price of the offering in half to roughly $500 million. Priced at 10 times earnings, the IPO attracted twice as many subscribers as there was stock available.

Still, the shares failed to generate a lot of enthusiasm after it began trading. Analysts cited weak equity markets and recent signs of growing pains in the Macau market as reasons.

Another recent development is a focus on Hoís partners in SJM. They were recently identified as the late tycoon billionaire Henry Fok and Asian developer, Henry Cheng of New World Development.

Fok reportedly held a 25% share of SJM while Chengí holdings amounted to about 10%. Yet, according to speculation in the Hong Kong financial circles, Chengís 10% generated more cash than all his controlling interests in his development company.

Questions of both Hoís age, the matter of succession and the substantial decline in the value of the American competitors, WYNN, LVS and MGM, have caused investors to remain prudent in the new public company.

Just how Macau grows following the Olympics could weigh heavily on their investment decisions.