Global Gaming and Casinos Industry Specialist, Casino Business Review LLC

Howard J Klein

Global Gaming and Casinos Industry Specialist

Casino Business Review LLC

Extensive experience in marketing and development in the Asian gaming market

Global Gaming and Casinos Industry

Equity Bottom-Up

Melco Resorts & Entertainment / Equity Bottom-Up

<ul>
<li>Melco shares have been hammered worse than peers during covid having fallen as low as a range ~US$4. Other factors contributed to downside, since eliminated.</li>
<li>1Q23 earnings release shows strong recovery arc in progress both in Macau and Manila.</li>
<li>With two markets firing and a third ready to open we see an attractive entry point here.</li>
</ul>


Melco shares have been hammered worse than peers during covid having fallen as low as a range ~US$4. Other factors contributed to downside, since eliminated.
1Q23 earnings release shows strong recovery arc in progress both in Macau and Manila.
With two markets firing and a third ready to open we see an attractive entry point here.


Melco Resorts: Stock at a Buy Point Here with Forward Prospects in Macau, Manila and Soon Cyprus

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a> had serious data problems. It still listed itself, against the wishes of the regulators. Then it got in serious hot water. And it's been getting hotter. </li>
<li>
<a href="https://www.smartkarma.com/entities/ramsay-health-care-ltd" target="_blank" data-smartkarma-citation="entities:673:1" rel="noopener">Ramsay Health Care (RHC AU)</a> announced an unsolicited, non-binding Offer from KKR (and HISTA), at A$88.00/share, a 36.7% premium to last close, however, earnings have been left bedridden by the pandemic.</li>
<li>Post-Deal, <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp (KEP SP)</a> will look more like <a href="https://www.smartkarma.com/entities/sembcorp-industries-ltd" target="_blank" data-smartkarma-citation="entities:1087:1" rel="noopener">Sembcorp Industries (SCI SP)</a>. More engineering, less power generation infra assets, more other infra assets and more data centres. </li>
</ul>



DiDi Global (DIDI US) had serious data problems. It still listed itself, against the wishes of the regulators. Then it got in serious hot water. And it's been getting hotter. 

Ramsay Health Care (RHC AU) announced an unsolicited, non-binding Offer from KKR (and HISTA), at A$88.00/share, a 36.7% premium to last close, however, earnings have been left bedridden by the pandemic.
Post-Deal, Keppel Corp (KEP SP) will look more like Sembcorp Industries (SCI SP). More engineering, less power generation infra assets, more other infra assets and more data centres. 


Last Week in Event SPACE: Didi Global, Ramsay Health, Keppel Corp, Melco, Toshiba, Twitter

<ul>
<li>The SEC has finalised the Holding Foreign Companies Accountable Act rules. Under the current timeframe, the SEC may force the delisting of foreign companies in three years if in contravention.</li>
<li>Amid <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi Global (DIDI US)</a>'s intention to delist from the US, the CSRC refutes it is pushing for VIEs to drop their listings in the United States.</li>
<li>Expect continued volatility as the ~248 US-listed China plays seek to avoid delisting if they don’t comply with auditing rules.</li>
</ul>


The SEC has finalised the Holding Foreign Companies Accountable Act rules. Under the current timeframe, the SEC may force the delisting of foreign companies in three years if in contravention.
Amid DiDi Global (DIDI US)'s intention to delist from the US, the CSRC refutes it is pushing for VIEs to drop their listings in the United States.
Expect continued volatility as the ~248 US-listed China plays seek to avoid delisting if they don’t comply with auditing rules.


Delisting Chinese ADRs: High Foreign-Holding, With No Fixed Abode, Most At Risk

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

Macau's top gaming stocks <a href="https://www.straitstimes.com/business/companies-markets/macau-casinos-see-188-billion-wipeout-as-china-tightens-control" target="_blank" rel="noopener">lost</a> a record USD18 billion in combined market value on 15 September 2021 after the Macau administration <a href="https://www.ggrasia.com/public-consultation-re-gaming-law-review-from-sept-15/" target="_blank" rel="noopener">announced</a><a href="https://www.ggrasia.com/macau-may-end-casino-sub-concessions-directly-monitor-ops/" target="_blank" rel="noopener"></a> a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government's direct supervision of casino operations drew the most consternation from investors and analysts. The sweeping revisions compound the woes of Macau's casino operators, such as <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK) </a> and <a href="https://www.smartkarma.com/entities/sands-china-ltd-088dbd12-a0e9-4516-a68f-6a3cf8aa065d" target="_blank" data-smartkarma-citation="entities:28515:1" rel="noopener">Sands China Ltd (SCHYY US)</a>, which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October's Golden Week was <a href="https://www.ggrasia.com/macau-oct-golden-week-daily-average-visits-dip-93pct-y-o-y/" target="_blank" rel="noopener">down 93.7%</a> on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. Amongst its peers, <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a>  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on <a href="https://www.smartkarma.com/entities/wynn-macau-ltd" target="_blank" data-smartkarma-citation="entities:473:1" rel="noopener">Wynn Macau Ltd (1128 HK)</a>'s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.

Macau's top gaming stocks lost a record USD18 billion in combined market value on 15 September 2021 after the Macau administration announced a 45 day public consultation period to discuss revisions to Gaming Laws, which comes as the June 2022 expiration deadline for existing gaming concessions loomed. Amongst others, the abolishment of the sub-concession framework (which could reduce current 6 operators to 3 operators), restriction on distribution of dividend, and Macau government's direct supervision of casino operations drew the most consternation from investors and analysts. The sweeping revisions compound the woes of Macau's casino operators, such as Wynn Macau Ltd (1128 HK)  and Sands China Ltd (SCHYY US), which had already been badly affected by pandemic driven travel restrictions, and which obliterated their gaming revenues.While there were some improvements due to easing of travel restrictions for Mainland travelers in September 2020, gross gaming revenues (GGR) remain a shadow of its past.  The daily average of visitors to Macau during October's Golden Week was down 93.7% on daily average in 2020. The decline coincided with new COVID-19 cases confirmed in Macau around the same period. Amongst its peers, Wynn Macau Ltd (1128 HK)  is the most highly levered and had already dodged a bullet by securing covenant waivers in April 2020 at the peak of the pandemic.In this Insight, we discuss the impact of the proposed revisions and subdued GGR recovery on Wynn Macau Ltd (1128 HK)'s cash reserves, debt servicing ability, and whether there may be potential breaches of its financial covenants.

Wynn Macau (1128 HK) - Gaming Law Revisions and Impact on Financial Covenants

On the 19 April, Oaktree <a href="https://www.smartkarma.com/compose/insight/53085/uyout%20Mr%20Packer%20via%20a%20%E2%80%9Ca%20structured%20instrument%20with%20the%20proceeds%20to%20be%20used%20by%20Crown%20to%20buy%20back%20some%20or%20all%20of%20the%20Crown%20shares%E2%80%9D%20held%20by%20his%20private%20company,%20Consolidated%20Press%20Holdings." target="_blank" rel="noopener">made</a> an $3bn unsolicited proposal to CWN's board via a then-undetermined debt/equity structure.
The transaction was geared to buy James Packer 37% stake in CWN via “a structured instrument with the proceeds to be used by Crown to buy back some or all of the Crown shares” held by his Packer's private company, Consolidated Press Holdings (CPH).
It was hardly a clean counter to Blackstone's cash Offer of <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02355769-3A563928?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">$11.85/share</a>. And questions remained as to size of the equity stake and the facility's interest rate. 
Blackstone subsequently increased its non-binding proposal for CWN by 4% on the 4 May to <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02372885-3A566842?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">$12.35</a>. Shortly after, Crown's domestic rival <a href="https://www.smartkarma.com/entities/star-entertainment-grp-ltd" target="_blank" data-smartkarma-citation="entities:926:1" rel="noopener">Star Entertainment Grp (SGR AU)</a> lobbed a non-binding <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02372888_PS-3A566843?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">proposal</a>, by way of a Scheme, either via the issuance of 2.68 new Star shares for every Crown share, or a possible cash alternative of A$12.50/share, subject to clawback.
Crown summarily concluded  Blackstone's Offer <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02375134-3A567212?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">undervalued</a> the company, but it required <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02375140-3A567213?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">more information</a> from Star to finalise its decisions. There was no comment on Oaktree's offer.
<h3>The New News</h3>
This morning Oaktree <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02384403-3A568800?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">bumped its proposal/facility</a> to $3.1bn, incorporating a 2bn private term loan and a $1.1bn loan convertible into new shares. 
The facility would be used to selectively buyback CPH's shares in CWN.
The convertible would be convertible into new shares of CWN at A$13/share, with such conversion capped at 9.99% of Crown's outstanding shares.
It's an interesting proposition. Plus it sticks a $13/share handle out there.
More below the fold.

On the 19 April, Oaktree made an $3bn unsolicited proposal to CWN's board via a then-undetermined debt/equity structure.
The transaction was geared to buy James Packer 37% stake in CWN via “a structured instrument with the proceeds to be used by Crown to buy back some or all of the Crown shares” held by his Packer's private company, Consolidated Press Holdings (CPH).
It was hardly a clean counter to Blackstone's cash Offer of $11.85/share. And questions remained as to size of the equity stake and the facility's interest rate. 
Blackstone subsequently increased its non-binding proposal for CWN by 4% on the 4 May to $12.35. Shortly after, Crown's domestic rival Star Entertainment Grp (SGR AU) lobbed a non-binding proposal, by way of a Scheme, either via the issuance of 2.68 new Star shares for every Crown share, or a possible cash alternative of A$12.50/share, subject to clawback.
Crown summarily concluded  Blackstone's Offer undervalued the company, but it required more information from Star to finalise its decisions. There was no comment on Oaktree's offer.
The New News
This morning Oaktree bumped its proposal/facility to $3.1bn, incorporating a 2bn private term loan and a $1.1bn loan convertible into new shares. 
The facility would be used to selectively buyback CPH's shares in CWN.
The convertible would be convertible into new shares of CWN at A$13/share, with such conversion capped at 9.99% of Crown's outstanding shares.
It's an interesting proposition. Plus it sticks a $13/share handle out there.
More below the fold.

Crown Resorts (CWN AU): Oaktree's Intriguing Proposal

Hong Kong

Melco Resorts & Entertainment Limited develops, owns, and operates casinos. The Company offers casino gaming, restaurants, bars, and resorts facilities. Melco Resorts & Entertainment serves customers in Asia.

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Melco Resorts & Entertainment (MLCO US)

Melco Resorts: Stock at a Buy Point Here with Forward Prospects in Macau, Manila and Soon Cyprus

MLCO is already seeing strong recovery post covid which have not yet been baked into the stock it its current trading range.

Howard J Klein

Last Week in Event SPACE: Didi Global, Ramsay Health, Keppel Corp, Melco, Toshiba, Twitter

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Delisting Chinese ADRs: High Foreign-Holding, With No Fixed Abode, Most At Risk

This does not strike me as the time to be bargain hunting. Not when there remains confusion as to how and when delistings will unfold. The focus...

David Blennerhassett

Wynn Macau (1128 HK) - Gaming Law Revisions and Impact on Financial Covenants

Macau's gaming stocks lost USD18 billion in market value after the Macau administration announced proposed revisions to Gaming Laws. We discuss the...

Jason Yap, CFA

Crown Resorts (CWN AU): Oaktree's Intriguing Proposal

Despite the positive aspects of Oaktree's proposal, the pushback may be that Crown's board may prefer to back an Offer which is simply cleaner in...

David Blennerhassett

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