Week 10 Melco Crown Entertainment – American Depository Receipts (Macau)
Key Issue:
Melco is currently the company that is asking for advice on what means they should use to raise capital with their projects based in Macau. The reason Melco is looking for new ways of funding is due to their current project on two casino resorts in Macau being stopped due to lack of funds. It is believed that US$1.6 billion is what is needed to complete the construction on the casinos however a portion of that, US$350 million is what is needed to get the project back underway.
The strategy that is chosen needs to be versatile enough that not only will it help in restarting the casino projects but it also needs to be flexible enough for long term funding.
Key Alternatives:
Melco has various options in terms of financing their construction project with possibilities of looking at funding in both the domestic markets within Hong Kong, as well has being able to source funding from international markets such as the US. To get a better idea of which market would be the most suitable for Melco the various possibilities need to be compared as well as taking other factors internal and external factors into account.
MCEL has stated that raising capital through equity would not be the worst option and they are open to this, provided the joint venture remains evenly split between PBL and Melco whilst also not relinquishing enough shares in order to remain majority shareholders.
Domestic possibilities:
One domestic possibility would be by issuing corporate bonds in Hong Kong, which has 71 of the 100 world’s largest banks situated there. The Hong Kong debt market is very liberal with international investors free to invest in debt instrument; there are also no restrictions on foreign borrowers tapping into the domestic debt market to finance their business. The yield within Hong Kong