Wynn Plans IPO for Macau Unit

Wynn Resorts (WYNN - Analyst Report) is planning to raise up to $1.6 billion in its Hong Kong initial public offering (IPO) for its Macau unit, which represents an increase from $1.0 billion as previously intended.

Wynn intends to offer 1.25 billion shares, representing 25% of the equity in the company's Macau operations. The price range of the offer is HK$8.52–$10.08 per share or US $1.10–$1.30. JP Morgan (JPM - Analyst Report), UBS AG (UBS - Snapshot Report) and Morgan Stanley have been chosen to handle this Hong Kong listing.

Wynn Encore Macau, the company’s second resort in Macau, is scheduled to open in the first half of 2010. The company has budgeted around $650 million for the construction of this resort and so far has incurred about half of that construction cost.

Las Vegas Sands (LVS - Analyst Report), Wynn’s rival, is also planning an IPO of its Macau assets in late November or early December.

Macau, a former Portuguese colony, is one of the world’s biggest gambling markets. Though the economic slowdown has negatively impacted the revenues of the casino operators in the last few quarters as fewer gamblers visited the casinos, we note that Macau has posted record revenues in August. Hence with the recent rebound in the economy and with indications that the visa restrictions on mainland Chinese visitors may lift, we think that the Hong Kong offering will strengthen the company’s earnings going forward.

While we remain encouraged with Wynn’s ability to execute in a difficult operating environment, its brand name and strong balance sheet with lower debt levels, we think that the company's limited diversity remains one of its key short-term risks.

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