Grand-Lisboa Hotel, Macau, SJM-Holdings

SJM Holdings Limited announced Wednesday that STDM agreed to extend an unsecured term loan of HK$2 billion in terms J.P. Morgan classifieds as disappointing. 

J.P. Morgan commented on the transaction: “what’s disappointing if not surprising is that the cap raise is comprised of debt and equity, which is contrary to what was discussed on the earnings call two days ago, where management told investors STDM would support the company with ~HK$5B loan & indirectly dismissed the possibility of an equity raise.

Ms. Daisy Ho, Chairman and Executive Director of SJM Holdings Limited, commented, “Both the Loan and the Rights Issue bolster the Company’s balance sheet position and liquidity and will place SJM Resorts in a strong position to participate in the tender for new Macau gaming concessions later this year. STDM’s strong backing of the Rights Issue and provision of the Loan demonstrates STDM’s and the Company’s confidence in the long-term growth potential of Macau notwithstanding the current difficult operating conditions.”

The rights issue is “probably worse than meets the eye,” J.P. Morgan notes as SJM plans to raise up to HK$3.0B via 1:4 rights issue at HK$2.08/share, a substantial 34% discount to the last closing (HK$3.14).

J.P. Morgan believes “the knee-jerk reaction could be more significant given the level of discount and investor disappointment.”

SJM remains J.P. Morgan’s least preferred stock in the sector.

STDM will provide the loan to enable the Company to invest in its principal subsidiary, SJM Resorts, S.A. as part of the increase in share capital which SJM Resorts is required to have to pre-qualify for the tender process by which the Macau Government may grant SJM Resorts a 10- year gaming concession commencing on 1 January 2023.

The loan is for a fixed period of 6 years from the date of drawdown and attracts interest at 4% per annum.

At the same time, the Company launched a rights issue by which the Company proposes to raise net proceeds of up to approximately HK$2,936.6 million. 

The subscription price represents a discount of approximately 29% to the theoretical ex-rights share price.

The Company intends to apply approximately HK$2,700 million to fund the increase in SJM Resorts’ share capital and the balance for the general working capital of the Group. 

Under the Rights Issue, STDM has agreed to take up its full entitlement and to apply for excess applications representing 50% of the maximum excess rights shares. The remaining 50% will be underwritten by BNP Paribas Securities (Asia) Limited.