High demand for Macao casino's offering

By Cong Mu

Casino operator Wynn Resorts' IPO of its Macao unit was bombarded with more than 10 times the demand than the number of shares offered, a source familiar with the deal said Friday, though analysts cautioned of a bubble in the future.

The source said the bulk of the interest in the unit has come from Asia, and the company wants to allocate some 50 percent of the share offering to Asian investors.

"Over 90 percent of its customers come from Hong Kong and the Chinese mainland. It's natural that the company wants to make sure most investors are from Asia, although it also wants long-term global investors," the source said.

The retail part of the offering was oversubscribed by roughly fiftyfold within the first few hours.

Winnie Leong, reservation agent at the casino hotel, said Saturday that all the rooms are booked from September 30 to October 10, China's long national holiday period, and about 50 percent of their guests are from the mainland.

Chairman Steve Wynn said last week that Guangdong residents can now get a visa to travel to the gaming enclave once a month, compared to once every three months previously.

Analysts at Credit Suisse doubted the relaxed restriction would have any real benefit on the casinos' profitability and expected the return on invested capital (ROIC) in the region's gaming sector to precipitously fall.

"Oversupply has become a serious concern, with sector ROIC declining sharply from 23.3% in 2008 to an expected 17.6% in 2010. On the other hand, optimism regarding positive policy changes may prove to be anticlimactic," said Gabriel Chan of the Swiss investment bank last week.

Credit Suisse estimated, in 2009 and 2010, the five major openings, including Wynn's Encore, will cost the casino operators an additional $5.9 billion in investment, up 83 percent from the 2008 level.

The increase of the slots and tables will bring fiercer competition as casinos may extend their price war to the mass-market segment, while the high-roller segment yields a much lower EBITDA margin, a measure of profitability, (about 8 to 10 percent) compared with the mass-market segment (about 26 to 30 percent), analysts said.

However, the casino operators seem not to share the analysts' concerns. Wynn is planning a new project in Macao's Cotai area as early as spring 2010, the Wall Street Journal reported.

Agencies contributed to this story

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