International edition
September 23, 2021

Hoping to expand abroad or to bolster business in Macau

Gambling companies bet on Hong Kong Stock Market

(Hong Kong).- China's international financial hub, located a quick ferry ride from Macau, has seen a throng of gambling companies rush to its equity markets over the past year. Since July 2013, at least six casino and VIP gambling companies have unveiled plans to list in Hong Kong, often through backdoor listings.


hese companies are either hoping to raise funds to expand abroad or to bolster business at home in Macau at a time when the enclave's US$ 45 billion gambling market is suffering its first revenue declines in five years.

Most recently, Nasdaq-listed Iao Kun Group Holdings last month filed a formal listing application to go public "by introduction," where no new funds are raised, hiring Rothschild (Hong Kong) as its sponsor. The company is part of Macau's junket industry, which brings high-spending gamblers from mainland China to Macau, issues them credit and collects players' debts in exchange for commissions from casinos.

In its preliminary prospectus, Iao Kun said the planned dual listing is "likely to provide our company ready access to two different equity markets when fundraising needs arise."

In January, International Entertainment, which is controlled by the family of Hong Kong tycoon Cheng Yu-tung, said it intended to pay up to US$ 947.9 million for a 70% stake in a company linked to Suncity Group, one of Macau's biggest junket operators. The company initially said it would complete the deal by June 30 but later told the exchange it would need until the end of the year.

By listing in Hong Kong, junket companies are hoping for more stable—and possibly cheaper—funding. Macau's junkets last year accounted for nearly two thirds of the territory's gambling revenue but more recently they have taken a hit from China's crackdown on corruption, which has made some wealthy customers wary of being seen betting big at the tables.

They also got smacked by a scandal in April when a junket figure believed to owe up to US$ 1.3 billion disappeared. The incident rocked investor confidence in the industry, making it harder for junket companies to secure funding through their usual methods—paying private investors hefty monthly returns to fund gamblers' activities.

So far no junket operator has completed a standard Hong Kong IPO where funds are raised from the start. The stock exchange and securities regulator "demand a very high standard" for such deals, said Tony Tong, an investor and consultant at Macau junket companies including the Heng Sheng Group. Junkets trying to list outright typically encounter difficulties regarding financial and compliance audits and anti-money-laundering policies, said Mr. Tong.

Instead, junket companies have tried to tap the market through backdoor listings by injecting gambling assets into newly acquired shell companies -as in the case of International Entertainment -or through a listing by introduction like Iao Kun, in which the entity doesn't issue shares or raise funds. The company can, however, raise funds in the future through placements.

Macau lets only individuals hold direct stakes in junket operators, so companies instead list an agreement entitling investors to a share of its profit. The structure—long popular with mainland Chinese companies looking to circumvent investment restrictions while listing abroad—is risky because the interests of investors and management may not always be aligned, said people involved in such deals.

Representatives for Iao Kun and International Entertainment declined to comment.

Hong Kong Exchanges & Clearing has a "rigorous vetting regime" in which listing applicants must disclose the terms of material agreements and risks associated with different business models among other items, said a spokesman. In other cases, smaller casino operators are tapping Hong Kong equity markets to expand in the region.

"The Asia gaming industry should be one of the fastest-growing sectors in the next decade," said CLSA analyst Aaron Fischer, pointing to potential developments planned everywhere from Macau to Southeast and North Asia.

Landing International Development, a Chinese property company that went public last year in Hong Kong through a backdoor listing, said in August 2013 it planned to invest in a casino-resort on South Korea's Jeju Island, which is popular with Chinese tourists.

In October, Macau gambling mogul Lawrence Ho listed a portion of his Russian casino-resort project, which would also target Chinese gamblers, through Hong Kong-listed Summit Ascent Holdings.

A hybrid fundraising model has also emerged with a deal done by Imperial Pacific International Holdings, a Hong Kong-listed company that in November said it had agreed to buy a company linked to the Heng Sheng Group, one of Macau's largest junket operators. Instead of trying to use the city's equity markets to fund its junket business, however, the company Wednesday said it planned to build a US$3.1 billion casino-resort on the Pacific island of Saipan. "All these bankers are recommending if you want a higher valuation, you have to run a land-based casino," said Mr. Tong.

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