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Financing gap spells pain for The 13: Union Gaming

Delays to the opening of Macau’s newest high-end resort, The 13, spells bad news for the operator, said Union Gaming in a note on Tuesday.

The hotel was due to open this month, but Union Gaming says a financing gap has prevented the operator from finishing the project.

“The timing of the opening of The 13 continues to be uncertain and we believe is dependent on the company being able to access financing in order to finish construction,” said the brokerage. “Under the assumption that the company is able to raise sufficient capital we would not be surprised if the opening were to slip into early 2018 given the time-consuming process of restarting what has become a stalled project.”

Union Gaming says the delay is particularly painful for the company, given the rebound in the VIP market - where The 13 is firmly positioned.

“Opening at the end of the wave of new construction puts the company at a disadvantage as it will be materially more difficult to compete against new supply that has a much longer head start than had initially been anticipated,” they added.

As per the company’s filing, The 13 Holdings is "actively considering and negotiating with a number of commercial banks and other financial institutions as well as certain shareholders of the Company to secure certain new sources of funding in the form of debt and/or equity."

However, Union Gaming argues that this is likely to be expensive in the case of debt, or dilutive in case of equity.

The company also recently announced the sale of its 52 percent stake in Paul Y Engineering (PYE), the engineering/ construction business that is building The 13.

However, the analysts argue that it won’t be enough to bridge the funding gap, and the sale of the firm “removes a backstop for valuation”.

Union Gaming has lowered its estimates, and is downgrading the shares of The 13 to “Hold”, subject on the company's ability to obtain financing and provide an updated opening timeline.

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