MGM Mirage (MGM) is widely expected to follow its gaming peers in raising funds through Asian capital markets. Earlier, Wynn Resorts (WYNN) and Las Vegas Sands (LVS) marched ahead with issuances on the Hong Kong Stock Exchange, generating $1.6 billion and $2.5 billion in proceeds, respectively. While an eventual MGM listing is unlikely to generate a similar amount, it should add $300 million - $700 million to the company’s coffers.
MGM’s 50/50 joint venture with businesswoman Pansy Ho of China resulted in the MGM Grand Macau, which opened in 2007. Although this gave the company a toehold in the biggest and fastest growing gaming market in the world, results since then have left much to be desired. Whereas the market shares for competitors Las Vegas Sands and Wynn Resorts have grown to 23% and 15%, respectively, MGM’s remains below 10%. What’s more, while some of its peers have strong development pipelines, MGM’s slate is bare. The company’s present state of affairs led CEO, James J. Murren, to declare that MGM’s “market share is half where it should be,” and thus the company would like to increase its footprint.
It is in the company’s best interest to expand its base of operations in the Pacific Rim. With that region’s recession seemingly over, consumers have started to loosen their purse strings and casino operators have begun to reap the rewards. And, momentum should continue. As the people in China become more affluent (per capita income continues to post double digit year-over-year gains) visitation to Macau is likely to increase. What’s more, Macau possesses an enviable geographic location, with nearly one billion people estimated to live within a three-hour flight.
Thus, MGM and its gaming brethren share the same motivation for raising capital; to expand their operations in Macau, China. However, in MGM’s case, that is easier said than done. The weakened condition of the company’s U.S. operations impairs its ability to raise debt. What’s more, Wall Street is unlikely to respond favorably to yet another equity offering by MGM in the U.S. (where the company had a massive share issuance in 2009). Lastly, liquidity problems at Dubai World (which owns 9.5% of MGM shares and holds a 50% interest in the company’s CityCenter development in Las Vegas) have eliminated a potential partner. Consequently, the most pragmatic source for capital is Hong Kong, where the appetite for IPOs remains strong. To that end, MGM’s best bet for a cash infusion may be to sell off a portion of its interest in MGM Grand Macau.