October 06, 2014

RWM has no plans to issue equity to finance RWBCI investments

Further to yesterday’s news on Travellers International Hotels Group (RWM) acquisition of Resorts World Bayshore City Inc (RWBCI), we were able to talk to management on how RWM will finance its investment and the construction of Resorts World Bayshore. RWM’s Chief Corporate Planning Officer highlighted the following key points:

  • There will be no equity issuances by Travellers to finance any cash call by RWBCI. Any equity issuances will be done at the RWBCI level and will be taken up by Travellers;

  • The planned investments (US$1.1b, inclusive of land costs) will be done in phases and will be financed by a) debt on the RWBCI level, and when necessary b) capital infusion from Travellers which, in turn, will be financed by internal cash flows and/or additional debt. As of end-1H14, Travellers is in a net cash position by about P7.03b and with an annualized net operating cash flow of about P5.6b;

  • Resorts World Bayshore will be differentiated from RW Manila in order to minimize any market cannibalization. It will cater more to tourists and the “staycation” market by offering more facilities (hotels, leisure parks, entertainment centers and retail shops) catering to this segment; 

  • For its gaming operations. RW Bayshore will target the premium mass and VIP markets, with less focus on the grind market. Given the different focus, Bayshore will have its own strategy in terms of marketing and promotions. Thus, expect that margins may be a bit different from that of RW Manila.

Our take: Assuming that there will be no changes in the financing plans, we believe that RWM will not face difficulty in financing the construction of the Resorts World Bayshore project given the phased development. Both RWM and RWBCI have a lot of leeway to borrow. We also find it positive that the new facility will cater to a different market to lessen potential competition with RWM.

However, a greater concern is the timing of the facility’s opening. While it will require less effort to market Entertainment City to foreign patrons as Solaire and City of Dreams would have already built the market by the time RW Bayshore will open in 4Q18, RW Bayshore will be facing competitors that are well-established and have gained considerable headway. This is especially crucial because RW Bayshore will be vying for the same target market.

The expected completion of the NAIA Expressway by end-2015 that connects the airport terminals to Entertainment City should also provide easier access to Solaire and City of Dreams. This will significantly cut travel time from the airports to the Entertainment City, thus limiting the current advantage of Resorts World Manila, and will fuel further visitations in Solaire and City of Dreams even before RW Bayshore commences operations – WealthSec