Macau’s Studio City Owner Registers For Potential ADS IPO

The legal entity controlling the Studio City casino resort in Macau has announced that it has taken the first step towards issuing an initial public offering (IPO).

Studio City International Holdings Ltd stated in a press release that it has submitted a draft registration application with the U.S. Securities and Exchange Commission for holding an American Depositary Shares (ADSs) IPO. The company added that the number of shares and the total amount are yet to be finalized.

Studio City Macau

Macau operator Melco Resorts and Entertainment Ltd has a 60 percent stake in Studio City International Holdings while the remaining 40 percent is held by New Cotai Holdings LLC, a company owned by two U.S. private equity firms Oaktree Capital Management LP and Silver Point Capital LP. Melco Resorts is already listed on the Nasdaq.

Studio City International Holdings said that the IPO issue will take place as and when market conditions are favorable, and after regulatory requirements are met. Analysts have however questioned the rationale behind the move noting that the company hasn’t clarified its reasoning.

Analysts Zhen Gong and Vitaly Umansky from brokerage Sanford C. Bernstein Ltd have suggested two possible reasons. One could be that the joint venture partner New Cotai could be looking to sell its stake and is in need of a market evaluation while another reason could be that New Cotai might be unwilling to pour in additional funds for the development of Phase 2 of Studio City.

A Melco spokesperson stated earlier this year that Phase 2 was still in design phase with regards to the utilization of remaining land available within the Studio City complex. The Sanford Bernstein analysts further added that they did not see any sound logic in holding the IPO. They pointed out that the organizational structure might be further complicated if the proposal goes ahead.

The analysts also suggested that the IPO might receive a discounted valuation given the current lackluster performance of the property. The Studio City project had a troubled beginning with the initial investor group shelving it after the financial crisis of 2008 caused a funding crunch. In 2011, Melco Resorts invested nearly $360 million in order to take a 60 percent stake in the project, working together with existing investors New Cotai.

In 2016, the chairman and chief executive of Melco Resorts, Lawrence Ho said during an interview that he was in no hurry to buy out the minority investors, citing differences in valuation expectations.