By Kate O’Keeffe and Prudence Ho
HONG KONG (Dow Jones)–U.S. hedge fund firm Paulson & Co. and investor Kirk Kerkorian are among four cornerstone investors buying into an initial public offering of Macau casino operator MGM China Holdings Ltd. (2282.HK) aimed at raising up to US$1.5 billion, a draft prospectus shows.
Hedge fund manager John Paulson’s firm plans to invest up to US$75 million in the casino joint venture between Las Vegas based-MGM Resorts International (MGM) and Pansy Ho, a daughter of Macau gambling tycoon Stanley Ho, the document said. Paulson & Co. is MGM Resorts International’s second-largest shareholder with an 8.96% stake.
Like the other cornerstone investors, Paulson & Co. has agreed not to sell its shares for at least six months after the listing.
Kerkorian has agreed to subscribe for up to US$50 million worth of shares in the new listing through his investment company Tracinda Corp. Tracinda holds a 26.85% stake in MGM Resorts International, making it the largest shareholder.
The other cornerstone investors include property developer Asia Standard International, controlled by Hong Kong businessman Poon Jing, which has pledged to invest up to US$40 million. A company owned by Hong Kong real-estate developer Walter Kwok’s family trust will chip in up to US$25 million. Kwok is the former chairman of blue-chip developer Sun Hung Kai Properties Ltd.
Cornerstone investors are guaranteed large allotments in an IPO in exchange for agreeing to hold the shares a certain length of time. They are commonly sought out to support IPOs in Hong Kong as a means of attracting other investors and creating a sense of scarcity for the remaining shares.
MGM China, which started bookbuilding for institutional investors Tuesday, plans to offer 760 million shares in an indicative price range of HK$12.36 to HK$15.34 (US$1.59 to US$1.97) a share for a June 3 listing, according to a term sheet seen Tuesday.
Shares of MGM China marketed to institutional investors were fully subscribed on the first day of their launch, a person familiar with the situation said Tuesday.
MGM China, whose Macau assets include a casino and a luxury hotel resort, swung to the black in 2010 with a net profit of HK$1.57 billion (US$201.88 million) compared with a net loss of HK$167.1 million in 2009, according to its listing document.
J.P. Morgan Chase & Co., Bank of America-Merrill Lynch, and Morgan Stanley are the joint sponsors on the deal, the term sheet said.
The company’s listing plan comes after the March settlement of a months-long family feud for control of Stanley Ho’s multibillion-dollar gambling empire. A dispute came out into the open earlier this year when the gambling tycoon accused the children of his second wife, including Pansy Ho, of colluding with his third wife, Ina Chan, to steal a company that held the bulk of his assets. They denied his accusations. The dispute was eventually resolved, and Stanley Ho dropped his lawsuit against his family members.
Under a deal announced last month, MGM Resorts International will have a 51% stake in MGM China after the joint venture’s IPO. Joint-venture partner Pansy Ho will have a 29% interest in the public company, and the remaining stake will be sold to the public, with the proceeds going to entities controlled by Pansy Ho. The two partners currently each hold a 50% stake in MGM China.
Wall Street analysts have lauded MGM Resorts’ plans to take a controlling stake in the Macau operator, saying it will give the debt-laden U.S. casino operator more exposure to the profitable Macau market and management control over the joint venture.
The Chinese territory raked in US$2.56 billion in gambling revenue last month, a 45% jump from a year earlier.
