SJM Holdings has announced it will raise almost HK$5 billion (US$637 million) in equity via a HK$2 billion (US$255 million) term loan from its controlling shareholder Sociedade de Turismo e Diversões de Macau, S.A. (STDM) and another HK$2.94 billion (US$375 million) via a rights issue.
The proceeds will enable SJM subsidiary SJM Resorts, S.A. – the company that holds its Macau casino concession – to satisfy a key requirement under Macau’s new gaming law by which all concessionaires must have MOP$5 billion in share capital set aside to pre-qualify for the government’s re-tender process.
SJM, which this week reported a US$352 million loss for the six months to 30 June 2022, said overnight that the term loan from STDM was for a fixed period of six years from the date of drawdown at an interest rate of 4% per annum.
The rights issue will offer one rights share for every four existing shares at a subscription price of HK$2.08 per rights share assuming no share options under the company’s employee share option scheme are exercised. The subscription price represents a discount of approximately 29% to the theoretical ex-rights share price, it said.
“The Company intends to apply approximately HK$2.7 billion (US$344 million) to fund the increase in SJM Resorts’ share capital and the balance for the general working capital of the group,” it explained.
SJM also confirmed that STDM, which holds a 54.7% stake in the company, has agreed to take up its full entitlement.
“Both the Loan and the rights Issue bolster the company’s balance sheet position and liquidity and will place SJM Resorts in a strong position to participate in the tender for new Macau gaming concessions later this year,” said SJM Chairman and Executive Director, Daisy Ho.
“STDM’s strong backing of the rights Issue and provision of the loan demonstrates STDM’s and the company’s confidence in the long-term growth potential of Macau notwithstanding the current difficult operating conditions.”
The move has, however, been met with less enthusiasm by analysts, with JP Morgan’s DS Kim stating it is “disappointing if not surprising that the cap raise is comprised of debt and equity which is contrary to what was discussed on the earnings call two days ago where management told investors STDM would support the company with ~HK$5 billion loan and indirectly dismissed the possibility of an equity raise.”
Kim also described the rights issue as “probably worse than meets the eye” given it represents a 34% discount on SJM’s last closing price of HK$3.14.
“The theoretical ex-rights price of HK$2.93 is only 7% below the current price, but we think the knee-jerk reaction could be more significant given the level of discount and investor disappointment,” he fired. “SJM remains our least preferred stock in the sector.
“That said, we view SJM’s equity raise as an isolated event and we do not expect other operators to follow suit given relatively ample liquidity situations.”
