Wynn Macau’s Convertible Bond Issuance Gets Negative Reaction, We Are Neutral

Narrow-moat Wynn Macau’s share price is down around 5% currently to HKD 7.68 in Hong Kong trading, on negative market reaction to the casino operator’s plan to issue convertible bonds. While the market may not like the possible 8.1% dilution (assuming all bonds are converted into shares), we are neutral on the move as we think the alternative would have been for Wynn Macau to raise borrowings that carry a higher debt cost. We leave our fair value estimate at HKD 8.00 and would prefer more upside to it before being buyers. We do expect Sands China and MGM China to refinance debt that is coming due, but traditional bank borrowings remain our base-case funding assumption. Overall, we continue to expect an improving visitor and gross gaming revenue outlook to remain the main driver to share price performance.