A 20 percent divestment in MGM China could provide MGM Resorts International with critical funds to become “the biggest Japanese gaming opportunity winner,” according to Snow Lake Capital.
The investment management firm, which holds a 7.5 percent stake in MGM, is calling for the aforementioned percentage to be sold as it notes that it will be in the “best interest to introduce as a strategic shareholder a leading Chinese consumer Internet or travel and leisure company.”
Long-term potential market
According to Snow Lake, the long-term potential market for the gaming industry in Japan is likely to be very important, adding that, from the examples of the Venetian in Macau and Marina Bay Sands in Singapore, “the first integrated resort to open in a large, untapped market enjoys significant first-mover advantages in terms of occupying consumer mind share and establishing brand power.”
MGM has long been an admirer of gaming developments in the region, forming a consortium to bid for the Osaka project with Orix Corporation in March 2019. In February 2020, it subsequently became the only approved bidder.
Estimates indicate that the overall estimated cost of the IR will be around US$12bn, which will be supported evenly by equity and debt. Orix and MGM will each have a 40 percent equity stake, while the remaining 20 percent will be taken up by a group of local companies.
In addition, it is also reported that three major Japanese banks have also agreed to finance the project, with a key precondition being MGM’s 40 percent participation.
The overall gross floor area of the project will be 1.3 million square meters, with four hotel towers totalling 3600 rooms and a gaming area of three percent. Its opening date should be around 2027 to 2028 with a 5-year construction duration.
The company will have to spend $2.4bn according to the estimates mentioned above, with Snow Lake indicating that a 20 percent MGM China will raise $1.3bn at its current stock price.
Favoured top US operators
Snow Lake says that, after the withdrawals of Las Vegas Sands and Wynn Resorts, “the Japanese government has always favoured the top US operators,” putting MGM in the prime position.
The investment firm also indicates that the dedication of MGM to the project is the key factor that will decide the overall success of the development, as well as suggesting that the inclusion of the company could probably be key to the success of the development of the entire Japanese gaming industry.
Selling of stakes
Snow Lake concluded in a lengthy correspondence asking MGM to consider the selling of stakes in its majority-owned subsidiary: “MGM Resorts’ negotiation power will likely also be significantly enhanced, if it were to stay committed to Japan despite the negative impact on its domestic operations due to the virus.
“It will likely gain a tremendous amount of goodwill both from central/local governments, as well as its Japanese partners. It’s possible that it can even gain an upper hand in the overall industry policy formulation.”