Billionaire Cheng’s Company to Buy Macau Junket Operator
International Entertainment Corp. (1009), the company controlled by the family of Asia’s fourth-richest man, Cheng Yu-tung, agreed to pay as much as HK$7.35 billion ($948 million) for a Macau gambling-junket operator, seeking to tap a casino boom in the Chinese city.
International Entertainment rose as much as 20 percent to HK$11.30 before closing 1.6 percent lower at HK$9.30 in Hong Kong. The city’s benchmark Hang Seng Index gained 0.3 percent. The stock resumed after a one-day halt.
Casino revenue in Macau, the only place in China where casinos are legal, jumped 18.6 percent to $45.2 billion last year. About two-thirds of the revenue came from high-stake bettors from mainland China whose gambling trips are arranged by junket operators. International Entertainment agreed to buy a 70 percent stake in Sun City Gaming Promotion Co., it said in a statement to the Hong Kong stock exchange yesterday.
“Buying into an existing junket operator is probably the easiest way to participate in Macau’s casino boom,” Grant Govertsen, an analyst at Union Gaming Group, said by phone today. “Macau’s government is unlikely to give out more casino licenses, but the city’s tremendous growth in casino business is largely driven by the mainland VIPs brought by the junkets.”
Cheng owns a 10 percent stake in closely held Sociedade de Turismo & Diversoes de Macau SA (STDM), founded by his longtime friend Stanley Ho. Cheng bought the stake from Ho’s former business partner in 1982. The 10 percent stake in STDM gives him control of 293 million shares of SJM Holdings Ltd. (880), Asia’s largest casino operator by revenue.
International Entertainment said the acquisition will enable it to “broaden its range of investments,” and it may need to raise funds by placement of shares or convertible securities to finance the acquisition.
Sun City, founded in 2007 by businessman Chau Cheok Wa, now runs 17 VIPs clubs, about 280 gaming tables, catering to high-stake mainland Chinese gamblers in Macau’s casino resorts, as well as overseas VIP clubs in South Korea and the Philippines, according to the company’s website.
Sun City derives its net profit from gambling promotion operations such as arranging transportation, accommodation and providing credit facilities for high-rollers on behalf of Macau casino operators including Galaxy Entertainment Group Ltd. (27) and Sands China Ltd. (1928) in exchange for a commission or other compensation, the statement said.
The junket operator expects its credit facilities offers to customers will be no less than HK$12 billion during 2014 and 2015 while the rolling turnover, or the total amount of bets players make, at its VIP rooms across Macau will be no less than HK$1.68 trillion, it said in the statement.
Sun City’s consolidated audited earnings before interest, taxes, depreciation and amortization, or Ebitda, for 2013 amounted to at least HK$1.5 billion, according to the statement.
Cheng Yu-tung’s net worth is calculated at $21.1 billion, according to the Bloomberg Billionaires Index.
International Entertainment is 75 percent controlled by Mediastar International Ltd., which is a wholly owned subsidiary of the Cheng Yu-tung family, according to a Hong Kong stock exchange filing last year.
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