The press release makes it sound like the major shareholders will buy all the unpurchased shares. That is my interpretation. We'll have to wait until next week to see what the terms are but my guess is there will be some value to the rights.
As you will remember there has been a plan in place for the founders to get their loan back for a few years. It was never meant to be a permanent thing. Now it is being done out of necessity if you look at the HK listing as necessary...............which apparently they do.
Depressed?? Seriously, I have no idea. Maybe he is on vacation.
But since he has followed MPEL for a while and likely remembered they ran in to the same thing when trying to list in HK I doubt this came as a shock. He must have known they were going to do something, he's a smart guy. If I found out about MPEL issuing stock to get their loan off the books anybody could have. I'm sure the info is available on the HK exchange site as well. It was hardly a secret, probably why short interest had been growing for a while.
Just to make the math easy I'll assume they would have made $1.50 with the 40M share count. That means they would have made $60M in net income, the low end of guidance.
If you divide $60M in NI by the new share count of say 60M you obviously get $1 of EPS.
From there you have to guess what the HK multiple might be. A 5 p/e gives you a $5 share price so that scenario has the folks who exercise their options on the rights offering coming out OK since they would have bought new shares at around $3.
Just a hypothetical.
I'm far from any kind of expert in this stuff, just going by what I read in the PR. To me the wording makes it sound like the insiders who are getting paid back for their loan are going to be buying the shares the current share holders don't buy, presumably along with exercising their own rights to buy shares. So the net effect is the two guys who made the loan get paid back but they stand to make a heavy investment in the newly issued shares. When you use the term cash out doesn't it really translate to getting their loan back while increasing their equity stake?
I agree with your math on the EPS dilution.
I'm just guessing they may not have done a conversion because it would have put too much equity ownership in the hands of insiders to qualify for the HK listing.
Would they do this to themselves if they didn't think it was in their own best interests in the long run? Not to look at it thru rose colored glasses but they are the biggest holders of the stock. Why shoot themselves in the foot? They have definitely known for a long time this was coming because the investment bankers they hired would have alerted them to it. So does it imply they think it is worth it?
Do you think it is possible they got an indication from overseas investors that the multiple they are willing to pay is high enough to make listing in HK worth all of this? Because otherwise it doesn't make a whole lot of sense to me either.
I'm wondering why you think the major shareholders are not going to exercise their own rights since they seem to have effectively pledged to buy the shares underlying the unexercised rights of other shareholders? What am I missing?
"Certain of AERL’s current shareholders are expected to agree to purchase any ordinary shares underlying unexercised rights. Some of the shareholders agreeing to purchase such shares hold the indebtedness that will be repaid with the proceeds of the rights offering. No consideration is expected to be paid to these shareholders for their agreement to purchase these shares."
I guess. I really don't know what to expect in the short run for the price. The whole issue of the founder's loan may have been one of the things keeping some funds away. At least I have speculated about that. Whether it is a longer term positive remains to be seen.
They definitely were walking a fine line in talking about the listing on the call. Technically I guess they were right to say the listing itself, being by introduction, will not trigger a share issuance. But I imagine some fund guys are going to be mighty ticked off as this move likely took most of them by surprise. It's going to be a bumpy and interesting ride for a few months, buckle up.
I did some DD on MPEL's listing by introduction there. They had the same issue, some sort of loan from management that was taken care of by an offering before HK would allow the listing. I have been wondering how AERL was going to deal what that requirement and now we know.
I can't say I really understand all the implications. It sounds like exercizing one's rights to buy discounted shares apparently allows each shareholder not to be diluted................"The rights offering will permit AERL to raise equity capital through the sale of ordinary shares without diluting existing shareholders who exercise their rights in full"..................though obviously with some cost attached. It will be an interesting week next week when more details come out.
I do have to say I'm surprised they feel the HK listing is so important as to do something like this. It's quite a big step to take. Looking forward to seeing how it plays out.
Just a quick follow-up. I e-mailed Preissler with a few questions about this and that. The new room is expected to be largely a cash play room (that is play thru agents not needing to have credit extended to them) so margins will be comensurate with that type of play.
Regarding cage cap, since they have not fully deployed capital for some time it is hard to get a fix on exactly where CC stands. Suffice to say the amount of CC can support 1.5-2x the current level of biz so up to roughly $3B in RCT per month.
HK is still months away. The only news of note (not news to me) is there will be no dilution to the share count.
Sounded like they said the arbitrage effect of the listing will initially be capped at 10% to minimize the risk exposure to the investment bank.
The new room was acquired, as much as anything else, for the diversity of the agents (essentially meaning the client base). It sounded as though that was also the intent behind the Bao Li acquisition since Preissler mentioned how well that room had been performing relative to the loss of previous biz.
Overall expenses are expected to drop due to a winding down of costs related the listing and lower commissions on a % basis to cash agents as more credit is deployed.
Quite a bit of focus on the best use of capital......acquisitions as opposed to buybacks as opposed to standing pat.
The blackout period (I think I heard this right) begins from the last 15 days of the quarter and goes to a few days after the quarter is reported so they have been no buybacks since mid March.
Pretty interesting that a self-identified short fund guy would call and say he sees AERL as an exciting opportunity. He said he could see the p/e returning to 10. Just one guy's opinion though.
Preissler made mention of a little perking up of fund interest since so many funds are under invested in the space in the wake of so many meltdowns of small cap China plays (again AERL is really not a Chinese company but has lumped in with them).
Kinda figures that after generating some momentum the global markets are getting crushed on weak Chinese flash PMI. A number that has strong implications for AERL's biz. It makes it all the more important that they made the recent acquisition which by one account targets a lower tier of VIP players who may not be as sensitive to macro trends in China.
You folks need to remember they only buy at a price that is accretive to earnings and even then only in a defensive posture. If the stock price stays above around $4.50 you can anticipate there will be virtually zero shares re-purchased. At that price or above their cash generates more impact to the bottom line staying in the cage than it would buying stock. They have explained this many times before.
I'm not seeing it. They are a hotel company with a small casino, have 1.3B shares outstanding meaning (like Neptune) it would take huge increases in revenue to effect earnings, have very small earnings, limited ability to grow those earnings, require huge cap ex expenses to expand, they would be hiring a company like AERL to operate their VIP room but are not a VIP operator.
MPEL isn't a comp either, it was just being used as a substitute.
Perhaps. But as we have seen expansion is not without cost. I think the plus is the investment compared to building a new casino is minimal and the return on capital comes back to them much more quickly. These room purchases are essentially paid for in 3 years with the cash flow being generated in the new room. The King's Gaming acquisition was made in Oct. of 2010 so it is on the verge of going right to the bottom line with no expenses attached.