The Wynn Macau IPO pricing
The Wynn Resorts IPO in Hong Kong of its Macau holdings was priced yesterday at the top of the range. This means WYNN will receive about US$1.6 billion for a 25% interest in this property. Trading begins on October 9th.
Two big plusses for Macau gaming: the market appears to be picking up, and China is relaxing visa restrictions placed last year on travel from southern China to Macau in order to cool down what had been an overheating market.
So far, so good. The Hong Kong IPO market itself seems to have shifted into a much lower gear, though–maybe even into reverse. There have now been five recent IPOs there that have ended the first day of trading below the initial offering price, thereby tempering enthusiasm for upcoming IPOs (not Wynn’s, though).
Why is the Hong Kong IPO market fading?
There are typically two factors involved in this kind of trading behavior.
As speculative fever begins to raise the temperature of a market, and as the ready supply of high-quality companies gets used up, investment bankers begin to present lower-quality companies for investor consideration. Professional investors, one would hope, recognize what is going on but sometimes shift into “greater fool” mode. They subscribe to IPOs that they have no intention of holding in their portfolios. Their main purpose is to make a short-term profit by “flipping, ” or selling for a fast gain on the first day or two of trading. After a while, as is apparently the case now in Hong Kong, the overall market catches on and issues begin to fail.
Also, IPOs thrive in a rising market. But the IPOs themselves siphon money out of the hands of investors who would otherwise be bidding up stocks that are already trading. This is just supply and demand. As the energy drain from the diversion of money to IPOs increases, the market loses its buoyancy and the stage is set for IPOs to fail.
Despite this, it’s interesting to note that Sinopharm (ticker 1099) continues to go from strength to strength, showing that the Hong Kong market can separate wheat from chaff.
What about LVS?
The IPO of the company’s Macau properties is slated for later in the year. LVS does not have the strong personal reputation of Steve Wynn going for it and appears to be in considerably greater need of the money than WYNN was. The cooling of the Hong Kong IPO fever may mean a lower price for the LVS offshoot than it might otherwise have gotten.
LVS may be among the biggest rooters for a strong showing by the Wynn IPO when trading commences a week from now.