The timing of a funding gap that continues to delay the opening of luxury hotel The 13 is “particularly painful” given the strong performance of Macau’s VIP sector in 2017, according to Union Gaming Managing Director and Head of Equity Research Grant Govertsen.
As reported by Inside Asian Gaming, The 13 Holdings Ltd has mooted a possible extension to its proposed 31 July opening date as it looks to raise additional funds to complete construction of the ambitious Cotai property.
But, having originally been slated for a mid-2016 opening, Govertsen predicts 2018 as a more likely scenario with any such delay potentially disastrous.
“Under the assumption that the company is able to raise sufficient capital we would not be surprised if the opening were to slip into early 2018 given the time-consuming process of restarting what has become a stalled project,” he said in a Tuesday note.
“The delay is particularly painful given the market rebound, especially at the high-end where The 13 is positioned. Opening at the end of the wave of new construction puts the company at a disadvantage as it will be materially more difficult to compete against new supply that has a much longer head start than had initially been anticipated.”
The 13 Holdings announced last week that it would sell its 51.76% stake in construction firm Paul Y Engineering in order to raise an additional HK$300 million for completion of its Macau hotel. It also said it is “actively considering and negotiating with a number of commercial banks and other financial institutions as well as certain shareholders of the Company to secure certain new sources of funding in the form of debt and/or equity.”
Union Gaming has subsequently downgraded its rating to Hold due to the many uncertainties surrounding The 13’s completion.
“While not disclosing the magnitude of funding needed we believe it is material and 1) likely to be very expensive in the case of debt (rates well into the teens), and/or 2) very dilutive in the case of additional equity,” said Govertsen, adding that he doubted the sale of Paul Y Engineering would suffice.
“The sale brings up at least two issues,” he said. “1) we don’t think it is nearly enough to erase the funding gap, and some, if not if all, of those proceeds seem to already be spoken for (e.g. the results announcement notes a borrowing of HK$300mm due on 12 July on which the company is attempting to get an extension); and 2) the sale of PYE removes a backstop for valuation.”
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