F-1 1 d552298df1.htm FORM F-1 Form F-1
Table of Contents

As filed with the Securities and Exchange Commission on September 7, 2018

Registration No. 333-          

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Studio City International Holdings Limited

(Exact name of Registrant as specified in its charter)

 

 

Not Applicable

(Translation of Registrant’s name into English)

 

Cayman Islands*   7011   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

[36/F, The Centrium

60 Wyndham Street

Hong Kong]

[+852 2598-3600]

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Cogency Global Inc.

10 East 40th Street, 10th Floor

New York, NY 10016

(800) 221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

copies to:

 

David T. Zhang, Esq.

Jacqueline Wenchen Tang, Esq.

Kirkland & Ellis International LLP

c/o 26th Floor, Gloucester Tower, The Landmark

15 Queen’s Road Central, Hong Kong

+852 3761 3300

 

James C. Lin, Esq.

Davis Polk & Wardwell LLP

c/o 18th Floor, The Hong Kong Club Building

3A Chater Road, Central

Hong Kong

+852 2533 3300

 

 

Approximate date of commencement of proposed sale to the public: as soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

† The term “new or revised financial accounting standard” refers to  any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of securities to be registered    Proposed maximum aggregate
offering price(2)(3)
  

Amount of registration

fee

Class A ordinary shares, par value US$0.0001 per share(1)

   US$115,000,000    US$14,317.50

 

 

(1)

American depositary shares issuable upon deposit of the Class A ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-            ). Each American depositary share represents              Class A ordinary shares.

(2)

Includes Class A ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the Class A ordinary shares are first bona fide offered to the public, and also includes Class A ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. These Class A ordinary shares are not being registered for the purpose of sales outside the United States.

(3)

Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

* Prior to the completion of this offering, Studio City International Holdings Limited will undergo a series of organizational transactions, as a part of which it will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

 

Subject to Completion, Dated                     , 2018

             American Depositary Shares

 

LOGO

Studio City International Holdings Limited

Representing             Class A Ordinary Shares

 

 

This is an initial public offering of American depositary shares, or ADSs, by Studio City International Holdings Limited. We are offering             ADSs to be sold in the offering. Each ADS represents              Class A ordinary shares, or SC Class A Shares.

Prior to this offering, there has been no public market for the ADSs or SC Class A Shares. We anticipate the initial public offering price will be between US$             and US$             per ADS. We have applied to list the ADSs on the New York Stock Exchange under the symbol “MSC.”

Upon completion of this offering, we will have two authorized classes of ordinary shares: SC Class A Shares and Class B ordinary shares, or SC Class B Shares. Holders of the SC Class A Shares and SC Class B Shares are entitled to one vote per share and will vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law or our memorandum of association and articles of association. Holders of the SC Class B Shares do not have any right to receive dividends or distributions upon our liquidation or winding up or to otherwise share in the profits or surplus assets of the Company.

Upon completion of this offering, the investors in this offering will collectively own             ADSs, representing              SC Class A Shares and a             % voting and economic interest in our company. As described under “Use of Proceeds,” we will contribute the net proceeds from this offering to our subsidiary, MSC Cotai Limited, or MSC Cotai, in exchange for ordinary shares of MSC Cotai, or MSC Cotai Shares. MCE Cotai Investments Limited, or MCE Cotai, will own 108,767,640 SC Class A Shares, representing a             % voting and economic interest in Studio City International. New Cotai will own 72,511,760 SC Class B Shares, representing a             % voting, non-economic interest in our company. New Cotai will also have a participation interest, or Participation Interest, in MSC Cotai, which will entitle New Cotai to receive from MSC Cotai an amount equal to             % of the amount of any distribution, dividend or other consideration paid by MSC Cotai to us, subject to adjustments, exceptions and conditions. Immediately following the conclusion of this offering, SC Class A Shares will collectively represent approximately             % of the voting power in our company and SC Class B Shares will collectively represent approximately             % of the voting power in our company.

Following the completion of this offering and the Assured Entitlement Distribution, we will be a “controlled company” within the meaning of the New York Stock Exchange corporate governance rules because Melco Resorts, through MCE Cotai, will hold             % of our then outstanding SC Class A Shares, assuming the underwriters do not exercise their over-allotment option, or             % of our then outstanding SC Class A Shares if the underwriters exercise their over-allotment option in full. See “Principal Shareholders.”

Investing in the ADSs involves a high degree of risk. See “Risk Factors ” beginning on page 22.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per ADS      Total  

Initial public offering price

   US$                    US$                

Underwriting discounts and commissions(1)

   US$                    US$                

Proceeds, before expenses, to us

   US$                    US$                

 

(1)

For a description of compensation payable to the underwriters, see “Underwriting.”

The underwriters have an option to purchase up to an additional             ADSs from us at the initial public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus.

 

 

The underwriters expects to deliver the ADSs against payment in U.S. Dollars in New York, New York, to purchasers on or about             , 2018.

 

Deutsche Bank Securities      Credit Suisse   Morgan Stanley

 

 

Prospectus dated             , 2018


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

The Offering

     12  

Summary Historical and Unaudited Pro Forma Condensed Consolidated Financial and Operating Data

     16  

Risk Factors

     22  

Special Note Regarding Forward-Looking Statements and Industry Data

     62  

Use of Proceeds

     64  

Dividend Policy

     65  

Capitalization

     66  

Dilution

     67  

Enforceability of Civil Liabilities

     69  

Corporate History and Organizational Structure

     71  

Unaudited Pro Forma Condensed Consolidated Financial Information

     79  

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June  30, 2018

     81  

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2017

     82  

Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December  31, 2016

     83  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2018

     84  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2017

     85  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2017

     86  
     Page  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2016

     87  

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2015

     88  

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

     89  

Selected Historical Consolidated Financial and Operating Data

     92  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     97  

Industry

     125  

Business

     138  

Regulation

     155  

Management

     167  

Principal Shareholders

     177  

Related Party Transactions

     179  

Description of Indebtedness

     187  

Description of Share Capital

     198  

Description of American Depositary Shares

     210  

Shares Eligible for Future Sale

     221  

Taxation

     223  

Underwriting

     229  

Expenses Related to this Offering

     239  

Legal Matters

     240  

Experts

     241  

Where You Can Find Additional Information

     242  

Index to Consolidated Financial Statements

     F-1  
 

 

 

We have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters have not authorized any other person to provide you with different or additional information. We are offering to sell, and seeking offers to buy, the ADSs offered hereby, but only under circumstances and in jurisdictions where offers and sales are permitted and lawful to do so. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

Neither we nor any of the underwriters have taken any action that would permit a public offering of the ADSs outside the United States or permit the possession or distribution of this prospectus or any related free-writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any related free-writing prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.

 

i


Table of Contents

Until                     , 2018 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

ii


Table of Contents

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, financial statements and related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors,” before deciding whether to buy the ADSs.

Our Business

Studio City is a world-class gaming, retail and entertainment resort located in Cotai, Macau. Studio City Casino has 250 mass market gaming tables and approximately 970 gaming machines, which we believe provide higher margins and attractive long-term growth opportunities. The mass market focus of Studio City Casino is complemented with junket and premium direct VIP rolling chip operations, which include 45 VIP rolling chip tables. Our cinematically-themed integrated resort is designed to attract a wide range of customers by providing highly differentiated non-gaming attractions, including the world’s first figure-8 Ferris wheel, a Warner Bros.-themed family entertainment center, a 4-D Batman flight simulator, an exclusive night club and a 5,000-seat live performance arena. Studio City features approximately 1,600 luxury hotel rooms, diverse food and beverage establishments and approximately 35,000 square meters (approximately 377,000 square feet) of complementary retail space. Studio City was named Casino/Integrated Resort of the Year in 2016 by the International Gaming Awards.

 

LOGO

Macau is the world’s largest gaming market, with gross gaming revenue in 2017 approximately 5.1 times that of the Las Vegas Strip and approximately 7.2 times that of Singapore, according to the Gaming Inspection and Coordination Bureau, or DICJ, the Nevada Gaming Control Board and Bloomberg Intelligence. The recent growth of the Macau gaming market has been robust, with gross gaming revenue increasing by 17.5% compared to the prior year period for the first eight months of 2018 to US$25.2 billion, and monthly gross gaming revenue



 

1


Table of Contents

growing for each of the 25 months from August 2016 to August 2018 on a year-on-year basis, according to the DICJ.

Macau is also a limited gaming concession market, with only six gaming concessions and subconcessions currently granted by the local government. We believe we are well-positioned to take advantage of this large and growing, supply-constrained market.

 

LOGO

Studio City is strategically located in Cotai, as the only property directly adjacent to the Lotus Bridge immigration checkpoint and one of the few dedicated Cotai hotel-casino resort stops planned on the Macau Light Rapid Transit Line. The Lotus Bridge connects Cotai with Hengqin Island in Zhuhai, China, a designated special economic district in China undergoing significant business and infrastructure development.

Studio City is rapidly ramping up since commencing operations in October 2015. We have grown total revenues from US$69.3 million in 2015 to US$424.5 million in 2016 and further to US$539.8 million in 2017, and generated net losses of US$232.6 million, US$242.8 million and US$76.4 million, respectively, for these periods. We increased our adjusted EBITDA from US$6.3 million in 2015 to US$123.0 million in 2016 and further to US$279.1 million in 2017, and expanded our adjusted EBITDA margin from 9.1% to 29.0% and further to 51.7%, respectively, for these periods. Our total revenues increased from US$253.9 million in the six months ended June 30, 2017 to US$282.2 million in the six months ended June 30, 2018 and our net loss decreased from US$47.0 million in the six months ended June 30, 2017 to US$14.8 million in the six months ended June 30, 2018. Our adjusted EBITDA increased from US$124.1 million in the six months ended June 30, 2017 to US$153.7 million in the six months ended June 30, 2018 and our adjusted EBITDA margin expanded from 48.9% to 54.5% in these periods, respectively.

Studio City Casino is operated by Melco Resorts Macau, or the Gaming Operator, one of the subsidiaries of Melco Resorts and a holder of a gaming subconcession, and we operate the non-gaming businesses of Studio City.

Our Industry

Macau has been the world’s largest gaming destination in terms of gross gaming revenues since 2006. Macau’s gross gaming revenues amounted to US$33.2 billion in 2017, which is approximately 5.1 times that of the Las Vegas Strip and approximately 7.2 times that of Singapore. The growth momentum of Macau’s gaming market has been robust in 2018 to date, with gross gaming revenues of US$25.2 billion recorded over the first eight months of 2018, reflecting a year-on-year increase of 17.5%.



 

2


Table of Contents

Macau is well-positioned and strategically important in the overall gaming market across the Asia Pacific region. The expansion of the gaming industry has also spurred investment and employment activities in related non-gaming industries, including retail, dining, entertainment, conference and convention sectors.

The Macau gaming market consists of two primary segments: the mass market and VIP rolling chip segments. The mass market segment consists of both mass market table games and gaming machines for primarily cash stakes. Mass market gaming revenues have grown significantly in recent years and amounted to US$13.0 billion in 2016 and US$14.4 billion in 2017, reflecting a year-on-year increase of 10.4%, and US$8.3 billion in the six months ended June 30, 2018, according to the DICJ. VIP rolling chip players in Macau typically play mostly in dedicated VIP rolling chip rooms for higher stakes. VIP rolling chip gross gaming revenues amounted to US$14.8 billion in 2016 and US$18.8 billion in 2017, reflecting a year-on-year increase of 26.7%, and US$10.5 billion in the six months ended June 30, 2018, according to the DICJ.

We believe the development of the Macau gaming market has been driven by and will continue to be driven by a combination of factors, including:

 

   

Close proximity to approximately 3.5 billion people in nearby regions in Asia and expansion of mainland China out-bound tourism to Macau;

 

   

Continuing economic development and emergence of a wealthier demographic in China;

 

   

Diversified range of gaming segments;

 

   

Increased diversification in non-gaming offerings further enhancing visitation and game play;

 

   

Further improvement of transportation and infrastructure driving visitation; and

 

   

Hengqin Island development initiatives.

Our Strengths

We believe that the following strengths contribute to our success and set us apart from our peers:

 

   

fully integrated destination resort focused on the attractive mass market segment;

 

   

strategic location with strong and improving accessibility;

 

   

well-positioned to capitalize on an improving market environment;

 

   

experienced and dedicated management team; and

 

   

significant operational experience and the extensive network of our controlling shareholder.

Our Strategies

We intend to pursue the following strategies to further develop our business:

 

   

continue to focus on the mass market segment;

 

   

complement the mass market business of Studio City Casino with VIP rolling chip operations;

 

   

continue to drive visitation and revenue growth through innovative non-gaming attractions;

 

   

continue to pursue strategic marketing initiatives and differentiate the “Studio City” brand; and

 

   

prudently manage our capital structure.



 

3


Table of Contents

Our Challenges

Our ability to achieve success and implement our strategies is subject to risks and uncertainties that include the following:

 

   

we have a short operating history compared to many of our competitors and we have a history of net losses and may have net losses in the future;

 

   

we do not hold a gaming license in Macau and Studio City Casino is operated by a subconcessionaire, Melco Resorts Macau, which is a subsidiary of Melco Resorts;

 

   

we utilize services provided by subsidiaries of Melco Resorts, including hiring and training of personnel for Studio City;

 

   

we face concentration risk in relation to our operation of Studio City;

 

   

we have a substantial amount of existing indebtedness and are subject to certain covenants which may restrict our ability to engage in certain transactions;

 

   

Studio City Casino’s gaming operations are subject to various risks relating to the gaming operations in Macau;

 

   

we are subject to risks in operating our non-gaming offerings;

 

   

if we fail to fully develop our remaining project under the land concession contract by July 24, 2021, or receive a further extension of the development period from the Macau government, we may be forced to forfeit all or part of our investment in the granted land, along with our interest in Studio City; and

 

   

our remaining project for Studio City is subject to significant development and construction risks and uncertainties.

In addition, we face risks and uncertainties related to our compliance with applicable regulations and policies in our operations in Macau.

See “Risk Factors” and other information included in this prospectus for a detailed discussion of the above and other challenges, risks and uncertainties.

CORPORATE HISTORY AND ORGANIZATIONAL STRUCTURE

Corporate History

We were established as an international business company, limited by shares, under the laws of the British Virgin Islands as CYBER ONE AGENTS LIMITED on August 2, 2000 and subsequently re-registered as a business company, limited by shares, under the British Virgin Islands Business Companies Act, 2004. New Cotai acquired a 40% equity interest in us on December 6, 2006. New Cotai is a private limited liability company organized in Delaware that is indirectly owned by investment funds managed by Silver Point Capital, L.P., Oaktree Capital Management, L.P. and other third party investors. MCE Cotai, a wholly owned subsidiary of Melco Resorts, acquired a 60% equity interest in us on July 27, 2011. Melco Resorts is an exempted company incorporated with limited liability under the laws of the Cayman Islands and its American Depositary Shares are listed on the NASDAQ Global Select Market in the United States. On January 17, 2012, our name was changed from CYBER ONE AGENTS LIMITED to STUDIO CITY INTERNATIONAL HOLDINGS LIMITED.

In October 2001, we were granted a land concession in Cotai by the Macau government for the development of Studio City, a cinematically-themed and integrated entertainment, retail and gaming resort. Studio City commenced operations on October 27, 2015. We conduct our principal activities through our subsidiaries, which are primarily located in Macau. We currently operate the non-gaming operations of Studio City. The Gaming Operator operates the Studio City Casino. See “Business—Our Relationship with Melco Resorts” and “Related Party Transactions—Material Contracts with Affiliated Companies.”



 

4


Table of Contents

Prior to or concurrently with the completion of this offering, we will engage in a series of “Organizational Transactions,” described below, through which substantially all of our assets and liabilities will be contributed to our subsidiary, MSC Cotai, a business company limited by shares incorporated in the British Virgin Islands, in exchange for all of the outstanding equity interests in MSC Cotai. In connection with the “Organizational Transactions” described below, we will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands.

Immediately prior to the Organizational Transactions, 60% of the equity interest in us was directly held by MCE Cotai and 40% of the equity interest in us was directly held by New Cotai.

Organizational Transactions

Each of the following transactions, referred to collectively as the “Organizational Transactions,” has been or will be completed prior to or in connection with the completion of this offering. The Organizational Transactions are conducted pursuant to an implementation agreement, or the Implementation Agreement, among MCE Cotai, Melco Resorts, New Cotai, MSC Cotai and us. See “Corporate History and Organizational Structure—Implementation Agreement.”

 

   

MSC Cotai was incorporated as a business company limited by shares in the British Virgin Islands.

 

   

We will enter into a transfer agreement, or the Transfer Agreement, with MSC Cotai to provide for the transfer by us and the assumption by MSC Cotai of substantially all of our assets and liabilities, in exchange for all of the outstanding equity interests in MSC Cotai. See “Corporate History and Organizational Structure—Transfer Agreement.”

 

   

We will amend and restate our memorandum of association and articles of association to, among other things, authorize two classes of ordinary shares, the SC Class A Shares and the SC Class B Shares. See “Description of Share Capital.” Each SC Class A Share and each SC Class B Share will entitle its holder to one vote on all matters to be voted on by shareholders generally and holders of SC Class A Shares and SC Class B Shares will vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law or our memorandum of association and articles of association. See “Description of Share Capital—Voting Rights.” Holders of the SC Class B Shares do not have any right to receive dividends or distributions upon our liquidation or winding up or to otherwise share in our profits and surplus assets.

 

   

MCE Cotai’s 60% equity interest in our company will be reclassified into SC Class A Shares.

 

   

New Cotai’s 40% equity interest in our company will be exchanged for SC Class B Shares, which have only voting and no economic rights. Through its SC Class B Shares, New Cotai will have voting rights in us, and we will control MSC Cotai.

 

   

In addition, New Cotai will have a non-voting, non-shareholding economic participation interest, or Participation Interest, in MSC Cotai, the terms of which will be set forth in a participation agreement, or the Participation Agreement, that will be entered into by MSC Cotai, New Cotai and us. See “Corporate History and Organizational Structure—Participation Agreement.”

 

   

The Participation Interest will entitle New Cotai to receive from MSC Cotai an amount equal to 66-2/3% of the amount of any distribution, dividend or other consideration paid by MSC Cotai to us, subject to adjustments, exceptions and conditions as set out in the Participation Agreement and further described in “Corporate History and Organizational Structure—Participation Agreement.” The 66-2/3% represents the equivalent of New Cotai’s 40% interest in us prior to the Organizational Transactions.



 

5


Table of Contents
   

The Participation Agreement will also provide that New Cotai will be entitled to exchange all or a portion of its Participation Interest for a number of SC Class A Shares subject to exceptions and adjustments as set out in the Participation Agreement. See “Corporate History and Organizational Structure—Participation Agreement.” When New Cotai exchanges all or a portion of the Participation Interest for SC Class A Shares pursuant to the terms of exchange set forth in the Participation Agreement and described herein, a proportionate number of SC Class B Shares will be deemed surrendered and automatically cancelled for no consideration as set out in the Participation Agreement.

 

   

We will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands prior to the completion of this offering.

In connection with the completion of this offering, we will issue             ADSs (representing             SC Class A Shares) to the investors in this offering (or             ADSs, representing             SC Class A Shares, if the underwriters exercise their option in full to purchase additional SC Class A Shares in the form of ADSs) in exchange for net proceeds of approximately US$             million (or approximately US$             million if the underwriters exercise their option in full to purchase additional SC Class A Shares in the form of ADSs), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Upon the completion of this offering, we will contribute the proceeds of this offering to MSC Cotai in exchange for              MSC Cotai Shares.

As a result of the Organizational Transactions and this offering, immediately following this offering:

 

   

the investors in this offering will collectively own             ADSs (representing             SC Class A Shares) representing a             % economic and voting interest in our company;

 

   

MCE Cotai will own 108,767,640 SC Class A Shares, representing a             % voting and economic interest in our company;

 

   

New Cotai will own 72,511,760 SC Class B Shares, representing a             % voting, non-economic interest in our company;

 

   

New Cotai will have a Participation Interest, which will entitle New Cotai to receive from MSC Cotai an amount equal to             % of the amount of any distribution, dividend or other consideration paid by MSC Cotai to us, subject to adjustments, exceptions and conditions;

 

   

SC Class B Shares will collectively represent approximately             % of the voting power in us; and

 

   

we will own all MSC Cotai Shares, representing 100% of the outstanding equity interests in MSC Cotai and 100% of the voting power in MSC Cotai.

The diagram below depicts our expected organizational structure immediately following completion of this offering. This diagram is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us, or owning a beneficial interest in us.



 

6


Table of Contents

LOGO



 

7


Table of Contents

 

(1)

Studio City Holdings Five Limited also holds 50% in one non-voting share.

(2)

Studio City Holdings Five Limited also holds 1% of the voting equity interest.

(3)

Studio City Holdings Five Limited also holds 3.85% of the voting equity interest.

(4)

Studio City Holdings Five Limited also holds 0.02% of the voting equity interest.

(5)

Studio City Holdings Four Limited also holds 3.96% of the voting equity interest.

(6)

Studio City Company Limited also holds 4% of the voting equity interest.

(7)

Upon the completion of this offering, New Cotai will have a Participation Interest in MSC Cotai, which will represent its economic right to receive an amount equal to             % of the dividends, distributions or other consideration paid to us by MSC Cotai, if any, from time to time. New Cotai may exchange all or a portion of its Participation Interest for SC Class A Shares, subject to certain conditions. See “Corporate History and Organizational Structure—Participation Agreement.”

(8)

Prior to the completion of this offering, STUDIO CITY INTERNATIONAL HOLDINGS LIMITED will undergo a series of organizational transactions, as a part of which it will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands.

(9)

Jointly owned by Studio City Hospitality and Services Limited, Studio City Hotels Limited, Studio City Entertainment Limited, Studio City Retail Services Limited and Studio City Developments Limited.

Corporate Information

Our principal executive offices are located at [36/F, The Centrium, 60 Wyndham Street, Central, Hong Kong]. Our telephone number at this address is [+852 2598-3600]. Our registered office in the Cayman Islands is at the offices of Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1-1205, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc., located at 10 East 40th Street, 10th Floor, New York, NY 10016.

Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website is www.studiocity-macau.com. The information contained on our website is not a part of this prospectus.

Basis of Presentation and Conventions Which Apply to This Prospectus

In connection with the completion of this offering, we will effect certain Organizational Transactions. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the completion of the Organizational Transactions and this offering. See “Corporate History and Organizational Structure” for a description of the Organizational Transactions and a diagram depicting our anticipated structure after giving effect to the Organizational Transactions and this offering.

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “our business”, “our company”, “STUDIO CITY INTERNATIONAL HOLDINGS LIMITED” or “Studio City International” refer to, and similar references refer to, Studio City International Holdings Limited and its consolidated subsidiaries, including MSC Cotai.

This prospectus contains the historical financial statements of our company and its consolidated subsidiaries. The unaudited pro forma consolidated financial information of our company presented in this prospectus has been derived from the application of pro forma adjustments to the historical consolidated financial statements of our company and its subsidiaries included elsewhere in this prospectus. These pro forma adjustments give effect to the Organizational Transactions and related transactions as described in “Corporate History and Organizational Structure” as if all such transactions had occurred on January 1, 2015. See “Unaudited Pro Forma Condensed Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the unaudited pro forma consolidated financial information included in this prospectus.

Except where the context otherwise requires:

 

   

“2012 Notes” refers to 8.50% senior notes due 2020 in an aggregate principal amount of US$825,000,000 issued by Studio City Finance Limited, or Studio City Finance, on November 26, 2012;



 

8


Table of Contents
   

“2013 Project Facility” refers to the senior secured project facility, dated January 28, 2013 and as amended from time to time, entered into between, among others, Studio City Company Limited, or Studio City Company, as borrower and certain subsidiaries as guarantors, comprising a term loan facility of HK$10,080,460,000 (approximately US$1,300 million) and revolving credit facility of HK$775,420,000 (approximately US$100 million), and which has been amended, restated and extended by the 2016 Credit Facility;

 

   

“2016 Credit Facility” refers to the facility agreement dated November 23, 2016 with, among others, Bank of China Limited, Macau Branch, to amend, restate and extend the 2013 Project Facility to provide for senior secured credit facilities in an aggregate amount of HK$234.0 million, which consist of a HK$233.0 million (approximately US$29.9 million) revolving credit facility and a HK$1.0 million (approximately US$129,000) term loan facility;

 

   

“2016 Notes” refers to (i) 5.875% senior secured notes due 2019 in an aggregate principal amount of US$350,000,000, or the 2016 5.875% Notes, and (ii) 7.250% senior secured notes due 2021 in an aggregate principal amount of US$850,000,000, or the 2016 7.250% Notes, both issued by Studio City Company on November 30, 2016;

 

   

“ADRs” refers to the American depositary receipts evidencing our ADSs;

 

   

“ADSs” refers to our American depositary shares, each of which represents                     SC Class A Shares;

 

   

“average daily rate” refers to total room revenues including the retail value of complimentary rooms (less service charges, if any) divided by total rooms occupied, including complimentary rooms, i.e., average price of occupied rooms per day;

 

   

“China, ” “mainland China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;

 

   

“Coloane” refers to one of the two main islands of Macau and which is located south of Taipa;

 

   

“concession” refers to a government grant for the operation of games of fortune and chance in casinos in Macau under an administrative contract pursuant to which a concessionaire, or the entity holding the concession, is authorized to operate games of fortune and chance in casinos in Macau;

 

   

“Cotai” refers to an area of reclaimed land located between the islands of Taipa and Coloane in Macau;

 

   

“gaming machine” refers to slot machine and/or electronic gaming table;

 

   

“gaming machine handle” refers to the total amount wagered in gaming machines;

 

   

“gaming machine win rate” refers to gaming machine win expressed as a percentage of gaming machine handle;

 

   

“Gaming Operator” refers to Melco Resorts (Macau) Limited (formerly known as Melco Crown (Macau) Limited), or Melco Resorts Macau, a company incorporated under the laws of Macau that is a subsidiary of Melco Resorts, the holder of a subconcession under the Subconcession Contract and the operator of Studio City Casino. The equity interest of the Gaming Operator is 90% owned by Melco Resorts and 10% owned by Mr. Lawrence Ho, the managing director of the Gaming Operator;

 

   

“gaming promoter,” also known as a junket operator, refers to an individual or corporate entity who, for the purpose of promoting rolling chip and other gaming activities, arranges customer transportation and accommodation, provides credit in its sole discretion if authorized by a gaming operator and arranges food and beverage services and entertainment in exchange for commissions or other compensation from a gaming concessionaire or subconcessionaire;

 

   

“HK$,” “H.K. dollar(s)” or “Hong Kong Dollar(s)” refers to the legal currency of Hong Kong;

 

   

“Hong Kong” refers to the Hong Kong Special Administrative Region of the PRC;

 

   

“Macau” or “Macao” refers to the Macau Special Administrative Region of the PRC;



 

9


Table of Contents
   

“Macau Peninsula” refers to the part of Macau which is geographically connected to mainland China and located north of Taipa;

 

   

“mass market” refers to both table games and gaming machines played by mass market players primarily for cash stakes;

 

   

“mass market table games drop” refers to the amount of table games drop in the mass market table games segment;

 

   

“mass market table games hold percentage” refers to mass market table games win as a percentage of mass market table games drop;

 

   

“Master Service Providers” refer to certain of our affiliates with whom we entered into a master service agreement and a series of work agreements with respect to the non-gaming services at the properties in Macau, and that are also subsidiaries of Melco Resorts, including Melco Crown (COD) Developments Limited (now known as COD Resorts Limited), Altira Developments Limited (now known as Altira Resorts Limited), the Gaming Operator, MPEL Services Limited (now known as Melco Resorts Services Limited), Golden Future (Management Services) Limited, MPEL Properties (Macau) Limited, Melco Crown Security Services Limited (now known as Melco Resorts Security Services Limited), MCE Travel Limited (now known as Melco Resorts Travel Limited), MCE Transportation Limited and MCE Transportation Two Limited (now known as MCO Transportation Two Limited);

 

   

“Melco International” refers to Melco International Development Limited, a public limited company incorporated in Hong Kong with its shares listed on The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange;

 

   

“Melco Resorts” refers to Melco Resorts & Entertainment Limited, a company incorporated in the Cayman Islands with its American depositary shares listed on the NASDAQ Global Select Market;

 

   

“MICE” refers to Meetings, Incentives, Conventions and Exhibitions, an acronym commonly used to refer to tourism involving large groups brought together for an event or specific purpose;

 

   

“MOP” or “Macau Pataca(s)” refers to the legal currency of Macau;

 

   

“MSC Cotai” refers to MSC Cotai Limited, a business company limited by shares incorporated in the British Virgin Islands as part of the Organizational Transactions described in “Corporate History and Organizational Structure—Organizational Transactions;”

 

   

“occupancy rate” refers to the average percentage of available hotel rooms occupied, including complimentary rooms, during a period;

 

   

“remaining project” refers to the part of the Studio City project comprised of a gross floor area of approximately 229,968 square meters, which is required to be developed under the land concession contract;

 

   

“REVPAR” refers to revenue per available room, calculated by dividing total room revenues including the retail value of complimentary rooms (less service charges, if any) by total rooms available, thereby representing a combination of hotel average daily room rates and occupancy;

 

   

“RMB” or “Renminbi” refers to the legal currency of China;

 

   

“rolling chip” or “VIP rolling chip” refers to non-negotiable chip primarily used by rolling chip patrons to make wagers;

 

   

“rolling chip patron” refers to a player who primarily plays on rolling chip or VIP rolling chip tables and typically plays for higher stakes than mass market gaming patrons;

 

   

“rolling chip volume” refers to the amount of non-negotiable chips wagered and lost by the rolling chip market segment;

 

   

“rolling chip win rate” refers to rolling chip table games win (calculated before discounts and commissions) as a percentage of rolling chip volume;



 

10


Table of Contents
   

“shares” or “ordinary shares” refers to our ordinary shares which, upon completion of this offering, will comprise two classes of ordinary shares, the SC Class A Shares and the SC Class B Shares;

 

   

“subconcession” refers to an agreement for the operation of games of fortune and chance in casinos between the entity holding the concession and a subconcessionaire, pursuant to which the subconcessionaire is authorized to operate games of fortune and chance in casinos in Macau;

 

   

“Subconcession Contract” refers to the subconcession contract executed between the Gaming Operator and Wynn Resorts (Macau) S.A., or Wynn Resorts Macau, on September 8, 2006, that provides for the terms and conditions of the subconcession granted to the Gaming Operator by Wynn Resorts Macau;

 

   

“Taipa” refers to one of the two main islands of Macau and which is located north of Coloane, south of the Macau Peninsula; and

 

   

“US$,” “U.S. Dollar(s),” “$” or “dollars” refers to the legal currency of the United States.

Our reporting currency is the U.S. Dollar and functional currencies are the U.S. Dollar, Hong Kong Dollar and Macau Pataca. This prospectus contains translations of certain Macau Pataca, Hong Kong Dollar and Renminbi amounts into U.S. Dollars for the convenience of the reader. Unless otherwise stated, all translations of Hong Kong Dollar and Renminbi amounts into U.S. Dollars in this prospectus have been made at the rates of HK$7.7800 to US$1.00 and RMB6.5063 to US$1.00, respectively. On June 29, 2018, the noon buying rate in The City of New York for cable transfers in Hong Kong Dollars and Renminbi as certified for customs purposes by the Federal Reserve Bank of New York set forth in the H.10 statistical release of the U.S. Federal Reserve Board for translation into U.S. Dollars was HK$7.8463 to US$1.00 and RMB6.6171 to US$1.00, respectively. The Federal Reserve Bank of New York does not certify for customs purposes a noon buying rate for cable transfers in Macau Pataca. The Macau Pataca is pegged to the Hong Kong Dollar at a rate of MOP1.03 to HK$1.00. Unless otherwise stated, all translations from Macau Patacas to U.S. Dollars in this prospectus were made at the exchange rate of MOP8.0134 to US$1.00. We make no representation that the Macau Pataca, Hong Kong Dollar, Renminbi or U.S. Dollar amounts referred to in this prospectus could have been, or could be, converted into U.S. Dollars, Macau Patacas and Hong Kong Dollars, as the case may be, at any particular rate or at all. On August 31, 2018, the noon buying rate for Hong Kong Dollars and Renminbi was HK$7.8486 and RMB6.8300 to US$1.00, respectively.

Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be exact arithmetic aggregations or percentages of the figures that precede them.



 

11


Table of Contents

THE OFFERING

The following assumes that the underwriters will not exercise their option to purchase additional ADSs in the offering, unless otherwise indicated.

 

Issuer

Studio City International Holdings Limited.

 

Offering Price

We expect that the initial public offering price will be between US$            and US$            per ADS.

 

ADSs Offered by Us

            ADSs (or             ADSs if the underwriters exercise their option to purchase additional ADSs in full).

 

ADSs Outstanding Immediately After This Offering

            ADSs (or            ADSs if the underwriters exercise their option to purchase additional ADSs in full).

 

  If all of New Cotai’s Participation Interest was exchanged for newly-issued SC Class A Shares in accordance with the terms of exchange set forth in the Participation Agreement and described in “Corporate History and Organizational Structure” (based upon an assumed offering price of US$             per ADS, which is the mid-point of the estimated range of public offering price set forth on the front cover of this prospectus),              ADSs representing              SC Class A Shares (or              ADSs representing              SC Class A Shares if the underwriters’ option is exercised in full) would be outstanding.

 

SC Class B Shares Outstanding Immediately After This Offering

72,511,760 SC Class B Shares.

 

  Immediately after this offering, New Cotai will own 100% of the outstanding SC Class B Shares.

 

The ADSs

Each ADS represents              SC Class A Shares. The ADSs may be evidenced by ADRs.

 

  The depositary will hold the SC Class A Shares underlying your ADSs and you will have rights as provided in the deposit agreement.

 

  We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our SC Class A Shares, the depositary will pay you the cash dividends and other distributions it receives on our SC Class A Shares, after deducting its fees and expenses.

 

  You may turn in your ADSs to the depositary in exchange for SC Class A Shares. The depositary will charge you fees for any exchange. We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.

 

  To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.


 

12


Table of Contents

Option to Purchase Additional ADSs

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to              additional ADSs.

 

Voting

Each share of our SC Class A Shares and SC Class B Shares entitles its holder to one vote on all matters to be voted on by shareholders generally.

 

  Holders of our SC Class A and SC Class B Shares vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law or our memorandum of association and articles of association.

 

  Upon completion of this offering, we will be controlled by Melco Resorts through its ownership of MCE Cotai. Upon completion of this offering, Melco Resorts, through MCE Cotai, will control approximately             % of the voting power in us (or approximately             % if the underwriters exercise their option in full to purchase additional SC Class A Shares in the form of ADSs). See “Corporate History and Organizational Structure.”

 

Voting Power of SC Class A Shares

            % (or 100% if all of the Participation Interest was exchanged for newly-issued SC Class A Shares in accordance with the terms of exchange set forth in the Participation Agreement as described in “Corporate History and Organizational Structure”).

 

Voting Power of SC Class B Shares

            % (or 0% if all of the Participation Interest was exchanged for newly-issued SC Class A Shares in accordance with the terms of exchange set forth in the Participation Agreement as described in “Corporate History and Organizational Structure”).

 

Use of Proceeds

We estimate that we will receive net proceeds of approximately US$             million from this offering and the Assured Entitlement Distribution (or US$             million if the underwriters exercise their option to purchase additional ADSs in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming an initial public offering price of US$             per ADS, being the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus.

 

  We intend to apply the net proceeds of this offering and the Assured Entitlement Distribution to acquire newly-issued MSC Cotai Shares. In turn, MSC Cotai intends to apply the net proceeds it receives from us primarily for the following purposes:

 

   

US$             million for repayment of certain of our existing indebtedness; and

 

   

the remainder for working capital and other general corporate purposes.

 

  See “Use of Proceeds” for additional information.


 

13


Table of Contents

Lock-up

[We and our existing shareholders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or otherwise dispose of any ADSs, SC Class A Shares or similar securities or any securities convertible into or exchangeable or exercisable for our SC Class A Shares or ADSs, for a period ending [●] days after the date of this prospectus, subject to certain exceptions. See “Underwriting” for more information.]

 

Listing

We have applied to list the ADSs on the New York Stock Exchange under the symbol “MSC.” Our ADSs and shares will not be listed on any other stock exchange or traded on any automated quotation system.

 

Payment and Settlement

The underwriters expect to deliver the ADSs against payment therefor through the facilities of The Depository Trust Company on            , 2018.

 

Depositary

Deutsche Bank Trust Company Americas.

 

Assured Entitlement Distribution

Pursuant to Practice Note 15 under the Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited, in connection with this offering, Melco International intends to make available to its shareholders an “assured entitlement” to a certain portion of our ordinary shares.

 

  As our ordinary shares are not expected to be listed on any stock exchange, Melco International intends to effect the Assured Entitlement Distribution by providing to its shareholders a “distribution in specie,” or distribution of our ADSs in kind. The distribution will be made without any consideration being paid by Melco International’s shareholders. Melco International’s shareholders who are entitled to fractional ADSs, who elect to receive cash in lieu of ADSs and who are located in the United States or are U.S. persons, or are otherwise ineligible holders, will only receive cash in the Assured Entitlement Distribution.

 

  Concurrently with this offering as a separate transaction, Melco International intends to purchase from us new SC Class A Shares needed for the distribution in specie at the public offering price per SC Class A Share, which is the public offering price per ADS divided by the number of SC Class A Shares represented by one ADS. Melco International currently intends to purchase from us new SC Class A Shares with an aggregate purchase price of US$[●] million, for the purpose of the assured entitlement distribution in specie. The Assured Entitlement Distribution will only be made if this offering is completed.

 

  The purchase of SC Class A Shares and distribution in specie of ADSs by Melco International are not part of this offering.

 

Exchange Arrangements

Subject to certain conditions, New Cotai and its permitted transferees may exchange all or part of their Participation Interest for a number of SC Class A Shares.


 

14


Table of Contents
  If New Cotai exchanges all or a portion of the Participation Interest for SC Class A Shares, it will also be deemed to have surrendered a corresponding number of SC Class B Shares, and any such SC Class B Shares so surrendered will be automatically cancelled for no consideration. See “Corporate History and Organizational Structure—Participation Agreement.”


 

15


Table of Contents

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following summary historical consolidated statements of operations data for the years ended December 31, 2017, 2016, and 2015 and summary historical consolidated balance sheets data as of December 31, 2017 and 2016 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The consolidated statements of operations data for the six months ended June 30, 2018 and 2017 and summary consolidated balance sheet data as of June 30, 2018 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements, except for the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (“New Revenue Standard”) using the modified retrospective method on January 1, 2018. Amounts for the periods beginning on or after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the previous basis. There was no material impact on our financial position as of June 30, 2018 and our results of operations and cash flows for the six months ended June 30, 2018 as a result of the adoption of the New Revenue Standard. The unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the periods presented. The consolidated statement of operations data for the year ended December 31, 2014 and the consolidated balance sheet data as of December 31, 2015 have been derived from our audited consolidated financial statements which are not included in this prospectus. The consolidated statement of operations data for the year ended December 31, 2013 and the summary consolidated balance sheets data as of December 31, 2014 and 2013 were not included in this section because Studio City did not commence operations until October 2015. Our historical results are not necessarily indicative of results expected for future periods. You should read this “Summary Historical and Unaudited Pro Forma Condensed Consolidated Financial and Operating Data” section together with our consolidated financial statements and the related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included elsewhere in this prospectus.

The summary unaudited pro forma condensed consolidated financial information presented below has been derived from our unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2018 and 2017 and for the years ended December 31, 2017, 2016 and 2015 and summary unaudited pro forma condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017 and 2016, give pro forma effect to the Organizational Transactions and related transactions as described in “Corporate History and Organizational Structure,” as if all such transactions had occurred on January 1, 2015, and are based on available information and certain assumptions we believe are reasonable, but are subject to change. See “Unaudited Pro Forma Condensed Consolidated Financial Information” for a complete description of the adjustments and the underlying assumptions of the unaudited pro forma condensed consolidated financial information.



 

16


Table of Contents
    For the Year Ended December 31,     For the Six Months Ended
June 30,
 
    2017     2016     2015(1)     2014(1)     2018(2)     2017  
   

(US$ thousands, except for share and per share data)

 

Consolidated Statements of Operations Data:

           

Operating revenues:

           

Provision of gaming related services

    295,638       151,597       21,427       —         168,595       133,352  

Rooms

    88,699       84,643       14,417       —         43,583       43,107  

Food and beverage

    60,705       61,536       9,457       —         31,459       29,195  

Entertainment

    18,534       35,155       6,730       —         6,273       9,507  

Services fee

    39,971       51,842       7,968       —         19,606       19,883  

Mall

    29,498       34,020       6,999       —         10,698       15,518  

Retail and other

    6,769       5,738       2,336       1,767       1,956       3,294  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    539,814       424,531       69,334       1,767       282,170       253,856  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

           

Provision of gaming related services

    (24,019     (25,332     (462     —         (10,756     (11,764

Rooms

    (21,750     (22,752     (4,113     —         (10,954     (10,707

Food and beverage

    (54,266     (62,200     (12,549     —         (27,370     (26,958

Entertainment

    (16,364     (41,432     (7,404     —         (6,886     (8,837

Mall

    (9,098     (11,083     (3,653     —         (5,382     (4,451

Retail and other

    (4,750     (3,696     (579     —         (1,274     (1,900

General and administrative

    (130,465     (135,071     (34,245     (3,071     (65,855     (65,179

Pre-opening costs

    (116     (4,044     (153,515     (14,951     (53     40  

Amortization of land use right

    (3,323     (3,323     (9,909     (12,104     (1,661     (1,661

Depreciation and amortization

    (173,003     (168,539     (31,056     (26     (83,783     (86,582

Property charges and other

    (22,210     (1,825     (1,126     —         (3,527     (4,267
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    (459,364     (479,297     (258,611     (30,152     (217,501     (222,266
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    80,450       (54,766     (189,277     (28,385     64,669       31,590  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-operating income (expenses):

           

Interest income

    2,171       1,152       4,641       8,901       1,439       800  

Interest expenses, net of capitalized interest

    (152,318     (133,610     (23,285     (18,047     (76,159     (76,159

Amortization of deferred financing costs

    (7,600     (25,626     (16,295     (10,642     (4,025     (3,735

Loan commitment fees

    (419     (1,647     (1,794     (15,153     (208     (208

Foreign exchange gains (losses), net

    466       (3,445     435       (2,710     (162     394  

Other income (expenses), net

    574       1,163       379       —         (22     287  

Loss on extinguishment of debt

    —         (17,435     —         —         —         —    

Costs associated with debt modification

    —         (8,101     (7,011     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expenses, net

    (157,126     (187,549     (42,930     (37,651     (79,137     (78,621
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

17


Table of Contents
    For the Year Ended December 31,     For the Six Months Ended
June 30,
 
    2017     2016     2015(1)     2014(1)     2018(2)     2017  
   

(US$ thousands, except for share and per share data)

 

Loss before income tax

    (76,676     (242,315     (232,207     (66,036     (14,468     (47,031

Income tax credit (expense)

    239       (474     (353     —         (375     15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (76,437     (242,789     (232,560     (66,036     (14,843     (47,016
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share:

           

Basic and diluted

    (4,217     (13,393     (12,829     (4,190     (819     (2,594
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding used in loss per share calculation:

           

Basic and diluted

    18,127.94       18,127.94       18,127.94       15,759.02       18,127.94       18,127.94  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss attributable to participation interest(3)

    30,575       97,116       93,024         5,937       18,806  

Pro forma net loss attributable to Studio City International(3)

    (45,862     (145,673     (139,536       (8,906     (28,210

Pro forma loss per Class A ordinary share(3)

           

Basic and diluted

    (0.422     (1.339     (1.283       (0.082     (0.259

Pro forma weighted average Class A ordinary shares outstanding used in loss per share calculation(3)

           

Basic and diluted

    108,767,640       108,767,640       108,767,640         108,767,640       108,767,640  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

 

 

(1)

We commenced operations in October 2015.

(2)

We adopted the New Revenue Standard using the modified retrospective method from January 1, 2018. Amounts for the periods beginning on or after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the previous basis. There was no material impact on our results of operations for the six months ended June 30, 2018 as a result of the adoption of the New Revenue Standard.

(3)

See “Unaudited Pro Forma Condensed Consolidated Financial Information” for the description of the assumptions underlying the pro forma calculation.



 

18


Table of Contents
     As of December 31,      As of June 30,  
     2017      2016      2015      2018(1)  
     (US$ thousands)  

Summary Consolidated Balance Sheets Data:

           

Total current assets

     460,927        397,218        661,074        417,764  

Cash and cash equivalents

     348,399        336,783        285,067        294,878  

Bank deposits with original maturities over three months

     9,884        —          —          24,987  

Restricted cash

     34,400        34,333        301,096        34,402  

Amounts due from affiliated companies

     37,826        1,578        40,837        29,143  

Total non-current assets

     2,466,640        2,624,781        2,731,509        2,405,377  

Property and equipment, net

     2,280,116        2,419,410        2,518,578        2,226,411  

Land use right, net

     125,672        128,995        132,318        124,011  

Restricted cash

     130        130        —          130  

Total assets

     2,927,567        3,021,999        3,392,583        2,823,141  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     178,070        193,439        327,213        93,001  

Accrued expenses and other current liabilities

     155,840        156,495        214,004        65,965  

Current portion of long-term debt, net

     —          —          74,630        —    

Amounts due to affiliated companies

     19,508        33,462        34,763        21,752  

Long-term debt, net

     1,999,354        1,992,123        1,982,573        2,003,181  

Other long-term liabilities

     9,512        19,130        23,097        4,216  

Total liabilities

     2,187,524        2,205,519        2,333,236        2,101,273  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total shareholders’ equity(1)

     740,043        816,480        1,059,347        721,868  

Total liabilities and shareholders’ equity(1)

     2,927,567        3,021,999        3,392,583        2,823,141  
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro forma total shareholders’ equity(2)

     444,033        489,895           433,128  

Pro forma participation interest(2)

     296,010        326,585           288,740  

Pro forma total shareholders’ equity and participation interest(2)

     740,043        816,480           721,868  

Pro forma total liabilities, shareholders’ equity and participation interest(2)

     2,927,567        3,021,999           2,823,141  
  

 

 

    

 

 

       

 

 

 

 

(1)

We adopted the New Revenue Standard using the modified retrospective method from January 1, 2018 and recognized an increase in opening balance of accumulated losses of US$3.3 million due to the cumulative effect of adopting the New Revenue Standard. Amounts for the periods beginning on or after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the previous basis.

(2)

See “Unaudited Pro Forma Condensed Consolidated Financial Information” for the description of the assumptions underlying the pro forma calculations.



 

19


Table of Contents

Key Operating Data

The following table presents the key operating data of Studio City for the periods indicated since the commencement of its operation on October 27, 2015.

 

     For the Year Ended
December 31,
     For the Six
Months Ended
June 30,
 
     2017      2016      2015      2018      2017  

Selected Key Operating Data

              

Mass market table games

              

Mass market table games drop (US$ million)

     2,913.0        2,480.0        365.3        1,639.5        1,317.7  

Mass market table games hold percentage

     26.1%        24.7%        22.4%        26.0%        26.6%  

Mass market table games gross gaming revenue(1) (US$ million)

     759.1        611.6        81.8        425.6        350.8  

Gaming machine

              

Gaming machine handle (US$ million)

     2,120.5        2,002.3        264.9        1,196.6        1,000.3  

Gaming machine win rate

     3.7%        3.8%        4.9%        3.5%        3.7%  

Gaming machine gross gaming revenue(2) (US$ million)

     78.2        76.0        12.9        42.0        37.0  

Average net win per gaming machine per day (US$)

     225        189        168        244        210  

VIP rolling chip(3)

              

VIP rolling chip volume (US$ million)

     19,003.9        1,343.6        —          12,682.8        8,206.4  

VIP rolling chip win rate

     3.16%        1.39%        —          2.67%        2.92%  

VIP rolling chip gross gaming revenue(4) (US$ million)

     600.8        18.6        —          339.0        239.4  

Hotel

              

Average daily rate (US$)

     140        136        136        137        137  

REVPAR (US$)

     138        133        133        137        135  

Occupancy rate

     99%        98%        98%        100%        99%  

 

(1)

Mass market table games gross gaming revenue is calculated by multiplying mass market table games drop by mass market table games hold percentage.

(2)

Gaming machine gross gaming revenue is calculated by multiplying gaming machine handle by gaming machine win rate.

(3)

VIP rolling chip operations commenced in November 2016. There is no assurance such VIP tables at the Studio City Casino will continue to be in operation after October 1, 2019. See “Risk Factors—Risks Relating to Our Business—The Gaming Operator may cease the operation of VIP rolling chip tables at the Studio City Casino under certain circumstances, including by providing us with a 12-month advance notice on or after October 1, 2018. There is no assurance that the VIP rolling chip operations at Studio City Casino will continue after October 1, 2019 and the discontinuation of such VIP rolling chip operations is likely to materially and adversely affect our financial condition and results of operations.”

(4)

VIP rolling chip gross gaming revenue is calculated by multiplying VIP rolling chip volume by VIP rolling chip win rate.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use adjusted EBITDA, a non-GAAP financial measure, as described below, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may differ from similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, pre-opening costs, property charges and other, other non-operating income and expenses. We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results. This



 

20


Table of Contents

non-GAAP financial measure eliminates the impact of items that we do not consider indicative of the performance of our business. While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with U.S. GAAP. It should not be considered in isolation or construed as an alternative to net income/loss, cash flow or any other measure of financial performance or as an indicator of our operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities.

The use of adjusted EBITDA has material limitations as an analytical tool, as adjusted EBITDA does not include all items that impact our net income/loss. Investors are encouraged to review the reconciliation of the historical non-GAAP financial measure to its most directly comparable GAAP financial measure.

The table below presents the reconciliation of net loss to adjusted EBITDA for the periods indicated.

 

     For the Year Ended December 31,     For the Six Months
Ended June 30,
 
     2017     2016     2015(2)     2014(2)     2018(3)     2017  
     (US$ thousands)  

Net loss

     (76,437     (242,789     (232,560     (66,036     (14,843     (47,016

Income tax (credit) expense

     (239     474       353       —         375       (15

Interest and other non-operating expenses, net

     157,126       187,549       42,930       37,651       79,137       78,621  

Property charges and other

     22,210       1,825       1,126       —         3,527       4,267  

Depreciation and amortization

     176,326       171,862       40,965       12,130       85,444       88,243  

Pre-opening costs

     116       4,044       153,515       14,951       53       (40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     279,102       122,965       6,329       (1,304     153,693       124,060  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin(1)

     51.7     29.0     9.1     N/A       54.5     48.9

 

(1)

Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by total revenues.

(2)

We commenced operations in October 2015.

(3)

We adopted the New Revenue Standard using the modified retrospective method from January 1, 2018. Amounts for the periods beginning on or after January 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the previous basis. There was no material impact on our results of operations and Adjusted EBITDA for the six months ended June 30, 2018 as a result of the adoption of the New Revenue Standard.



 

21


Table of Contents

RISK FACTORS

An investment in our ADSs involves significant risks. You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below, before making an investment in our ADSs. Any of the following risks could have a material and adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

We have a short operating history compared to many of our competitors and are therefore subject to significant risks and uncertainties. Our short operating history may not be indicative of our future operating results and prospects.

We have a short business operating history compared to many of our competitors, and there is limited historical information available about us upon which you can base your evaluation of our business and prospects. Studio City commenced operations in October 2015. As a result, you should consider our business and prospects in light of the risks, expenses, uncertainties and challenges that we may face given our short operating history in the intensely competitive market of the gaming business. The historical performance at the other casinos operated by the Gaming Operator should not be taken as an indication of Studio City Casino’s future performance or the performance of our remaining project once it commences operations.

We may encounter risks and difficulties frequently experienced by companies with early stage operations, and those risks and difficulties may be heightened by challenging market conditions of the gaming business in Macau and other challenges our business faces. Certain of these risks relate to our ability to:

 

   

operate, support, expand and develop our operations and our facilities;

 

   

respond to economic uncertainties;

 

   

respond to competitive market conditions;

 

   

fulfill conditions precedent to draw down or roll over funds from current and future credit facilities;

 

   

comply with covenants under our existing and future debt issuances and credit facilities;

 

   

respond to changing financial requirements and raise additional capital, as required;

 

   

complete the development of our remaining project for Studio City on time and in compliance with the conditions under the relevant land concession contract;

 

   

obtain the necessary authorizations, approvals and licenses from the relevant governmental authorities for the development of our remaining project for Studio City;

 

   

attract and retain customers and qualified staff;

 

   

maintain effective control of our operating costs and expenses;

 

   

maintain internal personnel, systems, controls and procedures to assure compliance with the extensive regulatory requirements applicable to our business as well as regulatory compliance as a public company; and

 

   

assure compliance with, and respond to changes in the regulatory environment and government policies.

If we are unable to successfully manage one or more of such risks, we may be unable to operate our businesses in the manner we contemplate and generate revenues in the amounts and at the rate we anticipate. If any of these events were to occur, it may have a material adverse effect on our business, prospects, financial condition, results of operation and cash flows.

 

22


Table of Contents

Because neither we nor any of our subsidiaries hold a gaming license in Macau, Studio City Casino is operated by the Gaming Operator through the Services and Right to Use Arrangements under the Gaming Operator’s subconcession. Any failure by the Gaming Operator to comply with its obligations as a subconcessionaire or any failure by the Gaming Operator or us to comply with its or our respective obligations under the Services and Right to Use Arrangements, including any regulatory requirements thereunder, may have a material adverse effect on the operation of Studio City Casino.

The Gaming Operator and our subsidiary, Studio City Entertainment, have entered into the Services and Right to Use Arrangements under which the Gaming Operator has agreed to operate Studio City Casino since we do not hold a gaming license in Macau. Under such arrangements, the Gaming Operator deducts gaming tax and the costs incurred in connection with its operations from Studio City Casino’s gross gaming revenues. We receive the residual amount and recognize such residual amount as revenues from provision of gaming related services.

The Services and Right to Use Arrangements were approved by the Macau government and are subject to the satisfaction of certain conditions imposed by the Macau government on the Gaming Operator and us in connection with granting its approval. Such conditions include but are not limited to Studio City Entertainment being subject to Macau government supervision applicable to gaming concessionaires and subconcessionaires. As a substantial part of our revenues and cash flows are generated from the Gaming Operator’s operation of Studio City Casino, any failure by the Gaming Operator to comply with any statutory, contractual or any other duties imposed on it as a subconcessionaire or any failure by the Gaming Operator or us to comply with its or our respective obligations under the Services and Right to Use Arrangements, including but not limited to any conditions imposed by the Macau government in granting its approval for our entry into the Services and Right to Use Arrangements, may result in the approval for the Services and Right to Use Arrangements being revoked by the Macau government and consequently an inability to receive any amounts thereunder or provide any gaming facilities at Studio City and thus have a material adverse effect on the operation of Studio City Casino including its suspension or cessation, and may cause the suspension or termination of the Gaming Operator’s subconcession. In 2008, the Macau government announced that services agreements with respect to gaming activities would no longer be approved or authorized. As a result, if the Services and Right to Use Arrangements or the Gaming Operator’s subconcession is terminated, we may not be able to enter into a new services agreement with another concessionaire or subconcessionaire. Even if such moratorium is lifted, we may not be able to enter into an arrangement for the operation of Studio City Casino with another concessionaire or subconcessionaire on terms that are as comparable or acceptable to us or at all. For details of the terms of the Services and Right to Use Arrangements, see “Related Party Transactions—Material Contracts with Affiliated Companies—Services and Right to Use Arrangements.”

Furthermore, the Gaming Operator has exclusive access to the customer database of the gaming operations at Studio City Casino and in the event of termination of the arrangement under the Services and Right to Use Arrangements, we may not be able to gain access to such database.

Any material dispute with the Gaming Operator or any failure by the Gaming Operator to comply with its obligations under its subconcession or by the Gaming Operator or us to comply with its or our respective obligations under the Services and Right to Use Arrangements, including but not limited to any conditions imposed by the Macau government in granting its approval for our entry into the Services and Right to Use Arrangements, may have a material adverse effect on the operation of Studio City Casino and in turn affect our financial condition and results of operations.

We rely on services provided by subsidiaries of Melco Resorts, including hiring and training of personnel for Studio City.

According to the Services and Right to Use Arrangements, the Gaming Operator is responsible for the operation of Studio City Casino facilities, including hiring, employing, training and supervising casino personnel.

 

23


Table of Contents

The Gaming Operator deducts gaming tax and the costs incurred in connection with its operations, including staff costs from Studio City Casino’s gross gaming revenues. We expect the Gaming Operator to continue managing all recruitment and training-related matters for staff that have been deployed at Studio City Casino.

In addition, under the Management and Shared Services Arrangements, we receive certain services from certain members of the Melco Resorts group. We rely on the Master Service Providers to recruit, allocate, train, manage and supervise a substantial majority of the staff who are all solely dedicated to our property to perform our corporate and administrative functions and carry out other non-gaming activities, including food and beverage management, retail management, hotel management, entertainment projects, mall development and sales and marketing activities, among others. In addition, pursuant to the Management and Shared Services Arrangements, certain shared services staff including certain senior management from the Master Service Providers are not solely dedicated to our property and may not devote all of their time and attention to the operation of Studio City. These shared services staff work for other properties owned by Melco Resorts, which may directly and indirectly compete with us. Any expansion of the business of Melco Resorts, whether effectuated through the Gaming Operator or other companies, could divert the attention and time of these shared services staff from the operations of Studio City and adversely affect us.

If the Gaming Operator or the Master Service Providers are unable to attract and retain a sufficient number of qualified staff or to provide satisfactory services to us or the costs of qualified staff increase significantly, our business, financial condition and results of operations could be materially and adversely affected.

The costs associated with the Services and Right to Use Arrangements and the Management and Shared Services Arrangements may not be indicative of the actual costs we could have incurred as an independent company.

Under the Services and Right to Use Arrangements, the Gaming Operator deducts gaming tax and the costs of operation of Studio City Casino. We receive the residual gross gaming revenues and recognize these amounts as our revenues from provision of gaming related services.

Under the Management and Shared Services Arrangements, certain of our corporate and administrative functions as well as operational activities are administered by staff employed by certain subsidiaries of Melco Resorts, including senior management services, centralized corporate functions and operational and venue support services. Payment arrangements for the services are provided for in the individual work agreements and may vary depending on the services provided. Corporate services are charged at pre-negotiated rates, subject to a base fee and cap. Senior management service fees and staff costs on operational services are allocated to us based on percentages of efforts on the services provided to us. Other costs in relation to shared office equipment are allocated based on a percentage of usage.

We believe the costs incurred under the Services and Right to Use Arrangements and the allocation methods under the Management and Shared Services Arrangements are reasonable and the consolidated financial statements reflect our cost of doing business. However, such allocations may not be indicative of the actual expenses we would have incurred had we operated as an independent company.

We face concentration risk in relation to our sole operation of Studio City.

We are dependent upon the operation of Studio City to generate our revenue and cash flows. Given that our operations are conducted only at Studio City in Macau, we are subject to greater risks than a company with several operating properties in several markets. These risks include, but are not limited to:

 

   

dependence on the gaming, tourism and leisure market in Macau;

 

   

limited diversification of our business and sources of revenue;

 

24


Table of Contents
   

a decline in economic and political conditions in Macau, China or Asia, or an increase in competition within the gaming industry in Macau or generally in Asia;

 

   

inaccessibility to Macau due to inclement weather, road construction or closure of primary access routes;

 

   

a decline in air or ferry passenger traffic to Macau due to higher ticket costs, fears concerning travel or otherwise;

 

   

travel restrictions to Macau and austerity measures imposed now or in the future by the governments in China or other countries in Asia;

 

   

tightened control of cross-border fund transfers and/or foreign exchange regulations or policies effected by the Chinese or Macau governments;

 

   

measures taken by the Chinese government to deter gaming activities or marketing of gaming activities to mainland Chinese residents;

 

   

changes in Macau governmental laws and regulations, or interpretations thereof;

 

   

natural and other disasters, including typhoons, outbreaks of infectious diseases or terrorism, affecting Macau;

 

   

relaxation of regulations on gaming laws in other regional economies that could compete with the Macau market;

 

   

government restrictions on growth of gaming markets, including policies on gaming table allocation and caps; and

 

   

a decrease in gaming activities and other spending at Studio City Casino.

Any of these conditions or events could have a material adverse effect on our business, cash flow, financial condition, results of operations and prospects.

In addition, as Macau is a limited gaming concession market nearing its land capacity for the development of integrated resorts, opportunities to expand our operations, if any, may be limited.

The Gaming Operator may cease the operation of VIP rolling chip tables at the Studio City Casino under certain circumstances, including by providing us with a 12-month advance notice on or after October 1, 2018. There is no assurance that the VIP rolling chip operations at Studio City Casino will continue after October 1, 2019 and the discontinuation of such VIP rolling chip operations is likely to materially and adversely affect our financial condition and results of operations.

The 250 mass market gaming tables permitted to be operated at the Studio City Casino by the Gaming Operator are designated for mass market purposes only and the Macau government has determined that tables authorized for mass market gaming operations may not be utilized for VIP gaming operations. While Studio City Casino continues to focus on the mass market segment, VIP rolling chip operations, including both junket and premium direct VIP offerings, were introduced at Studio City Casino in early November 2016. Such VIP rolling chip operations are operated by the Gaming Operator under the Services and Right to Use Arrangements. The VIP tables used in such operations were initially allocated by the Macau government for operation by the Gaming Operator at gaming areas of the Gaming Operator’s other properties in Macau.

The Gaming Operator has the ability to unilaterally cease operation of all or part of such VIP rolling chip tables at the Studio City Casino under certain circumstances, including by providing us with 12-month advance notice on or after October 1, 2018; upon the instruction or order of the Macau government; if Melco Resorts no longer, directly or indirectly, holds a majority of the voting power of certain of our subsidiaries, including Studio City Developments and Studio City Entertainment; and if Studio City Entertainment fails to pay its debts as they fall due.

 

25


Table of Contents

There is no assurance that the VIP tables at the Studio City Casino will continue to operate therein after October 1, 2019. Further, the 250 mass market gaming tables permitted to be operated at the Studio City Casino by the Gaming Operator are designated for mass market purposes only and there is no assurance or expectation that such tables may be operated as VIP rolling chip tables in the future as the Macau government has determined that tables authorized for mass market gaming operations may not be utilized for VIP gaming operations. Amounts received from the Studio City Casino VIP gaming operations, as determined under the Services and Right to Use Arrangements, amounted to US$36.6 million and US$14.6 million in 2017 and the first six months ended June 30, 2018, respectively. We would expect the discontinuation of the VIP rolling chip operations at Studio City Casino to have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Studio City Casino’s VIP rolling chip operations may cause volatility in our financial condition and results of operations due to changes in the economic and regulatory environments and Studio City Casino’s ability to attract and retain VIP rolling chip players.

Studio City Casino has and is expected to incur costs associated with the VIP rolling chip operations, while the expected revenues to be generated from the VIP rolling chip operations may be volatile primarily due to high bets and the resulting high winnings and losses. In 2017, gross win per VIP table per day was approximately US$40,000. VIP rolling chip operations are also more vulnerable to changes in the economic environment and therefore inherently more volatile than mass market operations. For example, according to statistics compiled from the DICJ, VIP rolling chip gross gaming revenues declined slightly in Macau from 2015 to 2016 while mass market gross gaming revenues increased slightly during the same period. Moreover, VIP rolling chip operations involve commissions to the gaming promoters and, as a result, the margins associated with VIP rolling chip operations are usually lower than the margins for mass market operations and may also be volatile from period-to-period due to significant variances in winnings and losses. As a result, Studio City Casino’s business, results of operations and cash flows may become more volatile than that of other casinos with only mass market gaming operations.

Further, the VIP rolling chip players pool is limited and we cannot assure you that the existing VIP rolling chip players at Studio City Casino will be recurring players. If Studio City Casino loses its existing VIP rolling chip players or fails to attract new VIP rolling chip players, our revenues and cash flows from the provision of gaming-related services could be materially and adversely affected. In addition, the VIP rolling chip segment may be particularly susceptible to certain changes in government policies, regulations and enforcement actions. For instance, the anti-corruption campaign of the Chinese government has had a negative effect on the VIP rolling chip segment in Macau. Any further campaigns may negatively affect the numbers of VIP rolling chip players in Macau and in turn, materially and adversely affect our business.

We have a history of net losses and may not achieve profitability in the future.

Studio City may not be financially successful or generate the cash flows that we anticipate. We had net losses of US$14.8 million, US$76.4 million, US$242.8 million and US$232.6 million for the six months ended June 30, 2018 and for the years ended December 31, 2017, 2016 and 2015, respectively, primarily because Studio City only commenced operations in October 2015 and is still in its ramp-up period. In addition, we incurred negative operating cash flows of US$113.1 million in 2015.

We expect our costs and expenses to increase in absolute amounts due to (i) the continued expansion of our operations, which will cause us to incur increased costs and expenses associated with the operation of our businesses; and (ii) the continued development of our remaining project.

We also expect that our capital expenditures will continue to increase as we continue to expand our existing operations and develop our remaining project. These efforts may be more costly than we expect and our revenue may not increase sufficiently to offset these expenses. We may continue to take actions and make investments

 

26


Table of Contents

that do not generate optimal short-term financial results and may even result in increased operating losses in the short term with no assurance that we will eventually achieve the intended long-term benefits or profitability. These factors may adversely affect our ability to achieve profitability and service debt obligations and interest payments under any of our existing or future financing facilities.

We have a substantial amount of existing indebtedness and may incur additional indebtedness, which could have significant effects on our business and future operations.

We have a substantial amount of existing indebtedness. As of June 30, 2018, we had total outstanding indebtedness of US$2,025.1 million, representing the outstanding balances of our existing notes and credit facility. Significant interest and principal payments are required to meet our obligations under the existing indebtedness. We may also incur additional indebtedness following this offering. Our substantial indebtedness could have important consequences for you and significant effects on our business and future operations. For example:

 

   

if we fail to meet our payment obligations or otherwise default under the agreements governing our existing indebtedness, the applicable lenders or note holders under our indebtedness will have the right to accelerate such indebtedness and exercise other rights and remedies against us;

 

   

we may be limited in our ability to obtain additional financing, if needed, to fund our working capital requirements, capital expenditures, debt service, general corporate or other obligations, including our obligations with respect to the existing indebtedness;

 

   

we are required to use all or a substantial portion of our cash flow from operations of Studio City to service our indebtedness, which will reduce the available cash flow to fund our operations, capital expenditures and other general corporate purposes;

 

   

we may be limited in our ability to respond to changing business and economic conditions and to withstand competitive pressures, which may affect our financial condition;

 

   

under certain existing indebtedness, the interest rates we pay in respect of the indebtedness which we are not required to hedge will fluctuate with the current market rates and, accordingly, our interest expense will increase if market interest rates increase;

 

   

we may be placed at a competitive disadvantage to our competitors who are not as highly leveraged; and

 

   

in the event that we or one of our subsidiaries were to default, it may result in the loss of all or a substantial portion of our and/or our subsidiaries’ assets over which our creditors have taken or will take security.

Under the terms of the indentures governing our existing indebtedness, we will be permitted to incur additional indebtedness if certain conditions are met, some of which may be senior secured indebtedness. If we incur additional indebtedness, certain risks described above will be exacerbated.

If we are unable to comply with our existing and/or future indebtedness obligations and other agreements, there could be a default under those agreements. If that occurs, lenders could terminate their respective commitments to lend to us or terminate their respective agreements, and holders of our debt securities could accelerate repayment of debt and declare all outstanding amounts due and payable, as the case may be. Furthermore, existing agreements governing our indebtedness contain, and future agreements governing our indebtedness are likely to contain, cross-acceleration or cross-default provisions. As a result, our default under any such agreement may cause the acceleration of repayment of other indebtedness, or result in a default under agreements governing our other indebtedness. If any of these events occur, our assets and cash flows may not be sufficient to repay in full all of our indebtedness and we may not be able to find alternative financing. Even if we are able to obtain alternative financing, it may not be on terms that are comparable or acceptable to us.

 

27


Table of Contents

Certain covenants under our agreements governing our existing indebtedness restrict our ability to engage in certain transactions and may impair our ability to respond to changing business and economic conditions.

Certain covenants under our agreements governing our existing indebtedness impose operating and financial restrictions on us. The restrictions that are imposed under these debt instruments include, among other things, limitations on our ability to:

 

   

pay dividends or distributions on account of our equity interests;

 

   

make specified restricted payments;

 

   

incur additional debt;

 

   

engage in other businesses or make investments;

 

   

create liens on assets;

 

   

enter into transactions with affiliates;

 

   

merge or consolidate with another company;

 

   

transfer and sell assets;

 

   

issue preferred stock;

 

   

create dividend and other payment restrictions affecting subsidiaries; and

 

   

designate restricted and unrestricted subsidiaries.

Certain of our credit facilities and debt instruments are secured by mortgages, assignment of land use rights, leases or equivalents, security over shares, charges over bank accounts, security over assets and other customary security over the assets of our subsidiaries. In the event of a default under such credit facilities and debt instruments, the holders of such secured indebtedness would first be entitled to payment from their collateral security and only then would holders of certain of our subsidiaries’ unsecured debt be entitled to payment from their remaining assets. For details and summary of terms of our indebtedness, see “Description of Indebtedness.”

As a result of these covenants and restrictions, we will be limited in how we conduct our business, and we may be unable to raise additional financing to compete effectively or to take advantage of new business opportunities. Future indebtedness or other contracts could contain financial or other covenants more restrictive than those contained in the agreements governing the existing indebtedness. In addition, general economic conditions, industry conditions and other events beyond our control may also affect our ability to comply with these provisions. If we fail to abide by such covenants, we may be unable to maintain our current financing arrangements, obtain suitable future financings or avoid an event of default which may adversely impact our cash flows, existing operations and future development.

We generate a portion of our revenues from, and are subject to risks in operating, non-gaming offerings.

We generate a portion of our revenues from non-gaming offerings and our financial performance in part depends on our ability to attract new and repeat customers to the non-gaming facilities at Studio City. Both visitation and the level of spending at our themed attractions, hotel, retail shops, restaurants and other leisure and entertainment facilities are key drivers of revenues and profitability, and reductions in either could have a material adverse effect on our business, prospects, results of operations and cash flows. In addition, any cessation of, or reduction in, the operation of VIP tables by the Gaming Operator at Studio City Casino could have a material adverse effect on visitation and the level of spending at our leisure and entertainment facilities as rolling chip patrons have become increasingly significant growth drivers for our high-end retail and fine-dining offerings. We do not have a long track record in operating these non-gaming facilities and may not be able to attract new and recurring customers to our non-gaming facilities at Studio City. Our success in non-gaming

 

28


Table of Contents

offerings depends on, among others, the effectiveness of our advertising and marketing initiatives, the attractiveness and safety of our entertainment facilities as compared to other resorts in Macau, the compliance with legal and regulatory requirements for our retail, entertainment and food and beverage outlets and our continued cooperation with the popular retail brands and restaurants. Moreover, many of our attractions which draw in large numbers of visitors, such as the Golden Reel and Batman Dark Flight may become obsolete in terms of technology or otherwise fail to continue to attract sufficient number of visitors. We cannot assure you that we will be financially successful in our non-gaming offerings or be able to maintain the average daily rate, occupancy rate and REVPAR of Studio City hotel or visitation to Studio City in general, which may adversely affect our ability to generate the cash flows that we anticipate and impact our operations and financial condition.

Studio City Casino’s gaming operations could be impacted by the reputation and integrity of the parties engaged in business activities at Studio City Casino and we cannot assure you that these parties will always maintain high standards of conduct or suitability throughout the term of Studio City Casino’s association with them. Failure to do so may potentially cause the Gaming Operator, us and our shareholders to suffer harm to our and our shareholders’ reputation, as well as impaired relationships with, and possibly sanctions from, gaming regulators.

The reputation and integrity of the parties who are or will be engaged in gaming activities at Studio City Casino are important to the continued operations of the casino in compliance with Gaming Operator’s subconcession and our own reputation. For parties that engage in gaming related activities, where relevant, the gaming regulators are expected to undertake their own probity checks and will reach their own suitability findings in respect of the activities and parties with which Studio City Casino may be associated. In addition, we conduct, and we expect that the Gaming Operator will conduct, an internal due diligence and evaluation process prior to the engagement of such parties. However, notwithstanding such regulatory probity checks, the Gaming Operator’s due diligence and our own due diligence, we cannot assure you that the parties with whom Studio City Casino is or will be associated will always maintain the high standards that gaming regulators, the Gaming Operator and we require or that such parties will maintain their suitability throughout the term of Studio City Casino’s association with them. If Studio City Casino were to be associated with any party whose probity was in doubt, this may reflect negatively on the Gaming Operator and our own probity when assessed by gaming regulators. A party associated with Studio City Casino may fall below the gaming regulators’ suitability standards.

In particular, the reputation of the gaming promoters operating in Studio City Casino is important to the Gaming Operator’s ability to continue to operate in compliance with its subconcession and our own reputation. While we endeavor, and we expect that the Gaming Operator also endeavors, to ensure high standards of probity and integrity in such gaming promoters, we cannot assure you that such gaming promoters will always maintain such high standards. If the probity of a gaming promoter associated with Studio City Casino was in doubt or such promoter failed to operate in compliance with Macau laws consistently, this may be considered by regulators or investors to reflect negatively on the Gaming Operator’s and on our own probity and compliance records. Such a gaming promoter may fall below the Gaming Operator’s or our standards of probity, integrity and legal compliance. There can also be no assurance that any allegation against, or negative publicity relating to, the gaming promoters operating in Studio City Casino or the Gaming Operator’s or our standards of probity, integrity and legal compliance will not have a material adverse impact on our reputation and business operations.

If any of the above were to occur, we, the Gaming Operator and our shareholders may suffer harm to our, the Gaming Operator’s and our shareholders’ reputation, as well as impaired relationships with, and possibly sanctions from, gaming regulators with authority over operations.

 

29


Table of Contents

We are developing the remaining project for Studio City under the terms of a land concession contract which require us to fully develop the land on which Studio City is located by July 24, 2021. If we do not complete development by that time and the Macau government does not grant us a further extension of the development period, we could be forced to forfeit all or part of our investment in Studio City, along with our interest in the land on which Studio City is located and the building and structures on such land.

Land concessions in Macau are issued by the Macau government and generally have terms of 25 years and are renewable for further consecutive periods of ten years. Land concessions further stipulate a period within which the development of the land must be completed. The land on which Studio City is located must be fully developed by July 24, 2021. While we opened Studio City in October 2015, development for the remaining land of Studio City is still ongoing and in the early stages. There is no guarantee we will complete the development of the remaining land of Studio City by the deadline. In the event that additional time is required to complete the development of the remaining project for Studio City, we will have to apply for a further extension of the relevant development period which shall be subject to Macau government review and approval at its discretion. While the Macau government may grant extensions if we meet certain legal requirements and the application for the extension is made in accordance with the relevant rules and regulations, there can be no assurance that the Macau government will grant us any necessary extension of the development period or not exercise its rights to terminate the Studio City land concession. In the event that no further extension is granted or the Studio City land concession is terminated, we could lose all or substantially all of our investment in Studio City, including our interest in land and building and may not be able to continue to operate Studio City as planned, which will materially adversely affect our business and prospects, results of operations and financial condition.

Future development of the remaining project is subject to significant risks and uncertainties.

Under our current plan for the remaining project, the remaining project is expected to consist of two hotel towers with a total of approximately 940 rooms and a gaming area of approximately 2,000 square meters. In addition, we currently envision the remaining project to also contain a waterpark with approximately 10,000 square meters indoors and approximately 2,000 square meters outdoors. Other non-gaming attractions expected to be part of the remaining project include MICE space, retail and food and beverage outlets and a cineplex.

The development and construction risks of this remaining project at Studio City include:

 

   

failure or delay in obtaining the necessary permits, authorizations, approvals and licenses from the relevant governmental authorities, including for any extension of the development period;

 

   

lack of sufficient, or delays in availability of, financing;

 

   

changes to plans and specifications;

 

   

engineering problems, including defective plans and specifications;

 

   

changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to leisure, real estate development or construction projects;

 

   

costs in relation to compliance with environmental rules and regulations in our development plans;

 

   

shortages of, and price increases in, energy, materials and skilled and unskilled labor, and inflation in key supply markets;

 

   

labor disputes or work stoppages;

 

   

shortage of qualified contractors and suppliers or inability to enter into definitive contracts with contractors with sufficient skills, financial resources and experience on commercially reasonable terms, or at all;

 

   

disputes with and defaults by or between suppliers, contractors and subcontractors and other counter-parties;

 

   

personal injuries to workers and other persons;

 

   

environmental, health and safety issues, including site accidents and the spread of viruses;

 

30


Table of Contents
   

fires, typhoons and other natural disasters, including weather interferences or delays; and

 

   

other unanticipated circumstances or cost increases.

As of the date of this prospectus, we are in the early stages of development of the remaining project. However, there is no assurance that our expected development plan will be successful and that we will be able to secure commercial terms favorable to us from our potential business or financing sources. In addition, we expect that our capital expenditures and depreciation and amortization expenses will increase as we continue to develop our remaining project. As of June 30, 2018, we have incurred approximately US$20.8 million of aggregate costs relating to the development of our remaining project, primarily related to the initial design and planning costs. Based on our current plan for the remaining project, we currently expect a project budget of approximately US$1.35 billion to US$1.40 billion for the development of the remaining project. As we obtain additional debt and/or equity financing, our leverage may intensify, our financing-related costs may increase and your equity interest in us may be diluted, as the case may be. Furthermore, there is no guarantee that we may be able to respond adequately to competitive or unfavorable market conditions to successfully operate and capitalize on our investment in the remaining project when it commences operations.

The occurrence of any of these development or construction risks could increase the total costs, delay or prevent the construction or opening or otherwise affect the design and features of the remaining project at Studio City. We cannot guarantee that our construction costs or total project costs for the remaining project at Studio City will not increase above our budget. Any failure to complete the remaining project on time or within our budget could have a material adverse effect on our business and prospects, financial condition, results of operations and cash flows.

We may not be able to obtain adequate financing on satisfactory terms for our existing business and/or remaining project, or at all.

In the past, we have funded our capital investment projects primarily through credit facilities and other debt financings. We will require additional funding in the future for the expansion of our current business and/or development of our remaining project, which may be substantial and which we may raise through a combination of credit, debt and equity financings. We may be required to seek the approval or consent of or notify the relevant government authorities or third parties in order to obtain such financings. We cannot assure you that we would be able to obtain such required approval or consent from the relevant government authorities or third parties with respect to such financing in a timely manner or at all.

Any financing related to the remaining project at Studio City will also be subject to, among others, the terms of our existing and any future financings. In addition, our ability to obtain credit, debt or equity financing on acceptable terms depends on a variety of factors that are beyond our control, including market conditions, investors’ and lenders’ perceptions of, and demand for, bond, bank and equity securities of gaming companies, credit availability and interest rates. For example, changes in ratings outlooks may subject us to ratings agency downgrades, which could make it more difficult for us to obtain financing on acceptable terms. As a result, we cannot assure you that we will be able to obtain sufficient funding on terms satisfactory to us, or at all, to finance our existing business and/or remaining project. If we are unable to obtain such funding, our business, cash flow, financial condition, results of operations and prospects could be materially and adversely affected.

Our results of operations are subject to seasonality and other fluctuations.

We are subject to seasonality and other fluctuations in our business. Our revenue is also largely affected by promotional and marketing activities and revenue may increase as a result of these activities. Launch of new promotions or the timing of such promotions may further cause our quarterly results to fluctuate and differ from historical patterns. Our results of operations will likely fluctuate due to these and other factors, some of which are beyond our control, including but not limited to: (i) fluctuations in overall consumer demand for gaming and hospitality, leisure and resort during certain months and holidays; (ii) introduction of new policies or regulatory measures; and (iii) macro-economic conditions and their effect on discretionary consumer spending. Because of

 

31


Table of Contents

these and other factors as well as the short operating history of our business, it is difficult for us to accurately identify recurring seasonal trends in our business. In addition, our rapid growth has masked certain fluctuations that might otherwise be apparent in our results of operations. When our growth stabilizes, the seasonality in our business may become more pronounced. If we fail to accurately identify the seasonal trends in our business and match our customer services and supplies in an effective manner, it may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Macau’s infrastructure may not adequately support the development of Macau’s gaming and leisure industry, which may adversely affect our expected performance.

Macau consists of a peninsula and two islands and is connected to China by two border crossings. Macau has an international airport and connections to China and Hong Kong by road, ferry and helicopter. To support Macau’s planned future development as a gaming and leisure destination, the frequency of bus, car, air and ferry services to Macau will need to increase. While various projects are under development to improve Macau’s internal and external transportation links, including the Macau Light Rapid Transit, capacity expansion of border crossings and the Hong Kong—Zhuhai—Macau Bridge, these projects may not be approved, financed or constructed in time to handle the projected increase in demand for transportation or at all, which could impede the expected increase in visitation to Macau and adversely affect Studio City. For example, there has been a delay in the development of the Macau Light Rapid Transit, and the benefits expected to be brought by Studio City’s proximity to one of the planned Cotai hotel-casino resort stops may not be fully realized until the commencement of operations of such light rail stop. The construction of the Hong Kong—Zhuhai—Macau Bridge, which is expected to significantly reduce the travel time among the three cities, has also experienced delays. Any further delays or termination of Macau’s transportation infrastructure projects may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

Health and safety or food safety incidents at Studio City may lead to reputational damage and financial exposures.

We provide goods and services to a significant number of customers on a daily basis at Studio City. In particular, with the number of attractions, entertainment and food and beverage offerings in Studio City, there are risks of health and safety incidents or adverse food safety events, such as food poisoning, slip and fall accidents or surges in crowd flow at popular ingress and egress points. While we have a number of measures and controls in place aimed at managing such risks, we cannot guarantee that our insurance is adequate to cover all losses, which may subject us to incur additional costs and damages, and negatively impact our financial performance. Such incidents may also lead to reduced customer flow and reputational damage to Studio City.

Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security.

We rely on information technology and other systems, including those maintained by third-parties with whom we contract to provide data services, to maintain and transmit large volumes of customer information, credit card settlements, credit card funds transmissions, mailing lists and reservations information and other personally identifiable information. We also maintain important internal company data such as personally identifiable information about our staff and information relating to our operations. The systems and processes we have implemented to protect customers, staff and company information are subject to the ever-changing risk of compromised security. These risks include cyber and physical security breaches, system failure, computer viruses, and negligent or intentional misuse by customers, company staff or staff of third-party vendors as well as ransomware attacks that encrypt, exfiltrate or otherwise render data unusable or unavailable in an effort to extort money or other consideration as a condition to purportedly returning the data to a usable form or refraining from selling or otherwise releasing the data. The steps we take to deter and mitigate these risks may not be successful and our insurance coverage for protecting against cybersecurity risks may not be sufficient. Our third-party information system service providers face risks relating to cybersecurity similar to ours, and we do not directly

 

32


Table of Contents

control any of such service providers’ information security operations. A significant theft, loss or fraudulent use of customer or company data maintained by us or by a third-party service provider could have an adverse effect on our reputation, cause a material disruption to our operations and management team, and result in remediation expenses, regulatory penalties and litigation by customers and other parties whose information was subject to such attacks, all of which could have a material adverse effect on our business, prospects, results of operations and cash flow. Furthermore, any extended downtime from power supply disruptions or information technology system outages which may be caused by cyber security attacks or other reasons at Studio City may lead to an adverse impact on our operating results if we are unable to deliver services to customers for an extended period of time.

Our collection and use of personal data are governed by personal data privacy laws and regulations, and this area of law changes often and varies significantly by jurisdiction. Compliance with applicable privacy regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our customers and guests. In addition, non-compliance with applicable privacy regulations by us (or in some circumstances non-compliance by third parties engaged by us) or a breach of security on systems storing our data may result in damage of reputation and/or subject us to fines, payment of damages, lawsuits, criminal liability or restrictions on our use or transfer of data.

Negative press or publicity about us or our directors, officers or affiliates may lead to government investigations, result in harm to our business, brand or reputation and have a material and adverse effect on our business.

Unfavorable publicity regarding us or our directors, officers or affiliates whether substantiated or not, may have a material and adverse effect on our business, brand and reputation. Such negative publicity may require us to engage in a defensive media campaign, which may divert our management’s attention, result in an increase in our expenses and adversely impact our results of operations or financial condition. The continued expansion in the use of social media over recent years has compounded the potential scope of the negative publicity that could be generated. Any negative press or publicity could also lead to government or other regulatory investigations, including causing regulators to take action against us or the Gaming Operator, including actions that could affect the ability or terms upon which the Gaming Operator holds its subconcession, its or our suitability to continue as a shareholder of certain subsidiaries and/or the suitability of key personnel to remain with the Gaming Operator. If any of these events were to occur, it would cause a material adverse effect on our business and prospects, financial condition and results of operations.

If qualified management and personnel cannot be retained at Studio City, our business could be significantly harmed.

We place substantial reliance on the gaming, project development and hospitality industry experience and knowledge of the Macau market possessed by members of our board of directors, our senior management team as well as other management personnel who serve Studio City under the Management and Shared Services Arrangements. We may experience changes in our key management in the future for reasons beyond our control. Loss of Mr. Lawrence Ho’s services or the services of the other members of our board of directors or key management personnel could hinder our ability to effectively manage our business and implement our growth and development strategies. Finding suitable replacements for members of our board of directors or senior management could be difficult, and competition for personnel of similar experience could be intense in Macau. In addition, we do not currently carry key person insurance on any members of our senior management team.

Operation of Studio City also requires extensive operational management and staff. The supply of experienced skilled and unskilled personnel in Macau is severely limited. Many of the personnel occupy sensitive positions requiring qualifications sufficient to meet gaming regulatory and other requirements or are required to possess other skills for which substantial training and experience may be needed. Moreover, competition to recruit and retain qualified gaming and other personnel is likely to intensify further as competition in the Macau

 

33


Table of Contents

integrated resort market increases. In addition, concessionaires and subconcessionaires are not currently allowed under the Macau government’s policy to hire non-Macau resident dealers and supervisors. We cannot assure you that a sufficient number of qualified individuals will be attracted and retained to operate Studio City or that costs to recruit and retain such personnel will not increase significantly. In addition, the Gaming Operator has recently been subject to certain labor demands and rallies. The inability to attract, retain and motivate qualified staff by the Gaming Operator and Master Service Providers could have a material adverse effect on our business.

In addition, recruitment efforts for the operations of Studio City may be adversely impacted by Macau government’s policies with respect to the approval and renewal of work permits for non-resident workers. In its policy address for the financial year of 2016, the Macau government disclosed that it had turned down 59 renewal applications of non-resident skilled workers for the gaming industry in the period from January to August 2015, a three-fold increase on the number of applications declined the previous year. In its policy address for 2017, the Macau government announced that it would continue to submit the applications for employment of non-resident workers to a rigorous exam and to stimulate the promotion of local workers to management positions in the gaming industry, signaling a tighter control on the employment of non-resident workers. Further, in its policy address for 2018, the Macau government has stressed once again that it will continue to monitor the proportion of management positions held by local workers in gaming operators and implement measures to ensure that such proportion is kept at a percentage not lower than 85% for senior and mid-management positions.

As we develop our remaining project, the construction of such project is subject to hazards that may cause personal injury or loss of life that expose us to liabilities and possible losses.

The construction of large-scale properties, such as the remaining project for Studio City, can be dangerous. Construction workers at such sites are subject to hazards that may cause personal injury or loss of life, thereby subjecting the contractors and us to liabilities, possible losses, delays in completion of the projects and negative publicity. We believe, and require that, our contractors take safety precautions that are consistent with industry practice, but these safety precautions may not be adequate to prevent serious personal injuries or loss of life, damage to property or delays. We are in the early stages of development of the remaining project. However, if accidents occur during the construction of our remaining project, there may be serious delays, including delays imposed by regulators, liabilities and possible losses which may not be covered by insurance, and our business, prospects and reputation may be materially and adversely affected.

Any simultaneous planning, design, construction and development of our remaining project may stretch our management’s time and resources, which could lead to delays, increased costs and other inefficiencies in the development of these projects.

There may be overlap in the planning, design, development and construction periods of our remaining project. Members of our senior management will be involved in planning and developing our remaining project at the same time, in addition to overseeing our day-to-day operations. Our management may be unable to devote sufficient time and attention to the remaining project, as well as Studio City, which may result in delays in the construction or opening of any of our future projects, cause construction cost overruns or cause the performance of Studio City to be lower than expected, which could have a material adverse effect on our business, financial condition and results of operations.

Our contractors may face difficulties in finding sufficient labor at an acceptable cost, which could cause delays and increase construction costs after we commence development of our remaining project.

The contractors we retain to construct our projects may face difficulties and competition in finding qualified construction labor and managers as more projects commence construction in Macau and as substantial construction activity continues in China. Immigration and labor regulations in Macau may cause our contractors to be unable to recruit sufficient laborers from China to make up for any shortage in available labor in Macau and to help reduce the costs of construction, which could cause delays and increase the construction costs of our remaining project.

 

34


Table of Contents

The possible infringement of key intellectual property used in our business, the dissemination of proprietary information used in our business or the infringement or alleged infringement of intellectual property rights belonging to third parties could adversely affect our business.

As part of our branding strategy, we have applied for or registered a number of trademarks (including “Studio City” trademarks and “Where Cotai Begins” trademarks) in Macau, Hong Kong and other jurisdictions for use in connection with Studio City. Where possible, we intend to continue to register trademarks as we develop, review and implement our branding strategy for Studio City. We intend to take steps to safeguard our intellectual property from infringement by third parties, such as taking actions against trademark and copyright violations, if and when necessary, and our staff and/or staff of the Gaming Operator or its affiliates or its designees are subject to confidentiality provisions in their employment agreements. Despite such measures, we cannot assure you that we will be successful in defending against the infringement of intellectual property to be used in our business or that any proprietary information to be used in our business will not be disseminated to our competitors, which could have an adverse effect on our future results of operations. In addition, our current and any future trademarks are subject to expiration and we cannot guarantee that we will be able to renew all of them prior to expiration. Our inability to renew the registration of certain trademarks and the loss of such trademarks could have an adverse effect on our business, financial condition, results of operations and cash flows.

We face the potential risk of claims that we have infringed the intellectual property rights of third parties, which could be expensive and time-consuming to defend, cause us to cease using certain intellectual property rights or selling or providing certain products or services, result in us being required to pay significant damages or to enter into costly royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property rights (if available at all), any of which could have a negative impact on the operation of Studio City and harm our future prospects. Furthermore, if litigation were to result from such claims, our business could be interrupted.

We may not have sufficient insurance coverage.

We currently have various insurance policies providing certain coverage typically required by gaming and hospitality operations in Macau. These insurance policies provide coverage that is subject to policy terms, conditions and limits. Certain of these policies have been obtained by us and certain of these policies have been obtained by Melco Resorts. We cannot assure you that we or, in the case of policies obtained by Melco Resorts, Melco Resorts will be able to renew such insurance coverage on equivalent premium costs, terms, conditions and limits upon their expiration. The cost of coverage may in the future become so high that insurance policies we deem necessary for the operation of our projects may not be obtainable on commercially practicable terms, or at all, or policy limits may need to be reduced or exclusions from our coverage expanded.

We cannot assure you that any such insurance policies we or Melco Resorts obtained or may obtain will be adequate to protect us from material losses. Certain acts and events could expose us to significant uninsured losses. In addition to the damages caused directly by a casualty loss such as fire or natural disasters, we may suffer a disruption of our business as a result of these events or be subject to claims by third parties who may be injured or harmed. While we intend to continue carrying business interruption insurance and general liability insurance, such insurance may not be available on commercially reasonable terms, or at all, and, in any event, may not be adequate to cover all losses that may result from such events.

There is limited available insurance in Macau and our insurers in Macau may need to secure reinsurance in order to provide adequate cover for our property and development projects. Our credit agreements, the Subconcession Contract and certain other material agreements require a certain level of insurance to be maintained, which must be obtained in Macau, unless otherwise authorized by the respective counter-parties. Failure to maintain adequate coverage could be an event of default under our credit agreements or the Subconcession Contract and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

35


Table of Contents

Studio City Entertainment’s tax exemption from complementary tax on income received from the Gaming Operator under the Services and Right to Use Arrangements will expire in 2021.

Companies in Macau are subject to complementary tax of 12% of taxable income, as defined in relevant tax laws. The Macau government granted to Studio City Entertainment, one of our subsidiaries, a Macau complementary tax exemption until 2021 on profits generated from income received from the Gaming Operator, to the extent that such income results from gaming operations within Studio City Casino and has been subject to gaming tax. We cannot assure you that the complementary tax exemption to Studio City Entertainment will be extended beyond its expiration date. If the tax exemption cannot be extended and we are held liable for complementary tax, it may have a material adverse effect on our financial condition.

From time to time, we may be involved in legal and other proceedings arising out of our operations.

We may be involved in disputes with various parties involved in the construction and operation of Studio City, including contractual disputes with contractors, consultants, suppliers, retailers, food and beverage operators and construction workers. See “Business—Legal and Administrative Proceedings.” Regardless of the outcome, these disputes may lead to legal or other proceedings and may result in substantial costs, delays in our development schedule and the diversion of resources and management’s attention. In addition, we may be involved in a variety of litigation, regulatory proceedings and investigation arising out of our business, which are inherently unpredictable. Ultimate judgments or settlements for such proceedings could increase our costs and thereby lower our profitability or have a material adverse effect on our liquidity. We cannot assure you that we will be able to obtain the appropriate and sufficient types or levels of insurance for Studio City. We may also have disagreements with regulatory bodies in the course of our operations, which may subject us to administrative proceedings and unfavorable decisions that result in penalties, suspension or restrictions on our operations, and/or delay the development of our remaining project at Studio City or closure of outlets at Studio City that are currently in operation. In such cases, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

In addition, if we are unsuccessful in defending against any claims alleging that we received misappropriated or misapplied funds, this may require further improvements to our existing anti-money laundering procedures, systems and controls and our business operations may be subject to greater scrutiny from relevant regulatory authorities, all of which may increase our compliance costs. We cannot assure you that any provisions we have made for such matters will be sufficient.

Any failure or alleged failure to comply with the U.S. Foreign Corrupt Practices Act, or FCPA, could result in penalties, which could harm our reputation and have an adverse effect on our business, results of operations and financial condition.

Our parent company is subject to regulations imposed by the FCPA, which prohibits companies and any individuals or entities acting on their behalf from offering or making improper payments or providing benefits to foreign officials for the purpose of obtaining or keeping business, along with various other anti-corruption laws. Following our listing on a U.S. stock exchange, we will also be subject to the FCPA. There has been a general increase in FCPA enforcement activities in recent years by the SEC and the U.S. Department of Justice. Both the number of FCPA cases and sanctions imposed have risen significantly. As a subsidiary of a parent company subject to the FCPA, we adhere to our parent’s ongoing anti-corruption compliance program covering both commercial bribery and public corruption which includes internal policies, procedures and training aimed to prevent and detect compliance issues and risks with the relevant laws including FCPA. Following our listing on a U.S. stock exchange, we intend to adopt such compliance program to manage our obligations under the FCPA. However, we cannot assure you that our staff, contractors and agents will continually adhere to the compliance program. Should they not follow the program, we could be subject to investigations, prosecutions and other legal proceedings and actions which could result in civil penalties, administrative remedies and criminal sanctions, any of which may result in a material adverse effect on our reputation, cause us to lose customer relationships or lead

 

36


Table of Contents

to other adverse consequences on our business, prospects, results of operations and financial condition. As we will be a U.S. listed company upon the completion of this offering, certain U.S. laws and regulations apply to our operations and compliance with those laws and regulations increases our cost of doing business and we expect such cost to increase after we become a U.S. listed company.

Fluctuation in the value of the H.K. dollar, U.S. dollar, Pataca or RMB may adversely affect our indebtedness, expenses and profitability.

Although the majority of the revenues from the operation of Studio City are denominated in H.K. dollars, we have certain expenses and revenues denominated in Patacas. In addition, a certain portion of our indebtedness and certain expenses are denominated in U.S. dollars, and the costs associated with repaying such debt and servicing interest payments are denominated in U.S. dollars. The value of the H.K. dollar and Patacas against the U.S. dollar may fluctuate and may be affected by, among other things, changes in political and economic conditions. Although the exchange rate between the H.K. dollar and the U.S. dollar has been pegged since 1983 and the Pataca is pegged to the H.K. dollar, we cannot assure you that the H.K. dollar will remain pegged to the U.S. dollar and that the Pataca will remain pegged to the H.K. dollar. In addition, the currency market for Patacas is relatively small and undeveloped and therefore our ability to convert large amounts of Patacas into U.S. dollars over a relatively short period of time may be limited. As a result, we may experience difficulty in converting Patacas into U.S. dollars, which could hinder our ability to service a portion of our indebtedness and certain expenses denominated in U.S. dollars. On the other hand, to the extent that we are required to convert U.S. dollar financings into H.K. dollars or Patacas for our operations, fluctuations in the exchange rates between H.K. dollars or Patacas against the U.S. dollar could have an adverse effect on the amounts we receive from the conversion.

Furthermore, the depreciation of RMB against U.S. dollar or H.K. dollar will affect the purchasing power of visitors from the PRC, which in turn may affect the visitation and level of spending at Studio City. To date we have not engaged in hedging transactions with respect to foreign exchange exposure of our revenues and expenses in our day-to-day operations. Instead, we plan to maintain a certain amount of our operating funds in the same currencies in which we have obligations, thereby reducing our exposure to currency fluctuations. However, we may occasionally enter into foreign exchange transactions as part of financing transactions and capital expenditure. We will consider our overall policy on hedging for foreign exchange risk from time to time. Any significant fluctuations in the exchange rates mentioned above may have a material adverse effect on our revenues and financial condition.

Industry data, projections and estimates contained in this prospectus are inherently uncertain and subject to interpretation. Accordingly, you should not place undue reliance on such information.

Certain facts, forecasts and other statistics relating to the industries in which we compete in contained in this prospectus have been derived from various public data sources. While we generally believe such public data sources are reliable, we have not independently verified the accuracy or completeness of such information. Such public data sources may not be prepared on a comparable basis or may not be consistent with other sources. You should not place undue reliance on such information as a basis for making your investment decision.

Risks Relating to Operating in the Gaming Industry in Macau

The Subconcession Contract expires in 2022 and if the Gaming Operator is unable to secure an extension of its subconcession, or a new concession or subconcession, in 2022, or if the Macau government were to exercise its redemption right, the Gaming Operator would be unable to operate Studio City Casino.

The Subconcession Contract expires on June 26, 2022. Unless it is extended beyond this date, a new concession or subconcession is granted and/or legislation on reversion of casino premises is amended, Studio City Casino’s gaming related equipment operated by the Gaming Operator under its subconcession will automatically revert to the Macau government without compensation. In addition, under the Subconcession

 

37


Table of Contents

Contract, from 2017, the Macau government has the right to redeem the Subconcession Contract by providing the Gaming Operator with at least one year’s prior notice. The Macau government has not issued formal guidelines or policies with respect to the renewal or extension of subconcessions. In the event the Gaming Operator is not able to renew or extend the Subconcession Contract on terms favorable or acceptable to it, or at all, or the Macau government redeems the Subconcession, our results of operations, financial condition, cash flows and prospects may be materially and adversely affected and we would be subject to additional refinancing risks with respect to our existing indebtedness.

Under the Gaming Operators subconcession, the Macau government may terminate the subconcession under certain circumstances without compensation to the Gaming Operator and may determine that Studio City Casino may not continue to operate under the Services and Right to Use Arrangements, which would prevent the operation of Studio City Casino.

Under the Gaming Operator’s subconcession, the Macau government has the right to unilaterally terminate the subconcession in the event of non-compliance by the Gaming Operator with its basic obligations under the subconcession and applicable Macau laws. If such a termination were to occur, the Gaming Operator would be unable to operate casino gaming in Macau, including Studio City Casino. Termination events include, among others, the operation of gaming without permission or operation of a business which does not fall within the business scope of the subconcession; abandonment of approved business or suspension of operations of its gaming business in Macau without reasonable grounds for more than seven consecutive days or more than 14 non-consecutive days within one calendar year; transfer of all or part of the Gaming Operator’s operation in Macau in violation of the relevant laws and administrative regulations governing the operation of games of fortune or chance and other casino games in Macau and without Macau government approval; failure to pay taxes, premiums, levies or other amounts payable to the Macau government; and systematic non-compliance with the Macau Gaming Law’s basic obligations. These events could lead to the termination of the Gaming Operator’s subconcession without compensation and the Gaming Operator would be unable to operate casino gaming in Macau, which would have a material adverse effect on our financial condition, results of operations and cash flows and could result in defaults under our indebtedness agreements and a partial or complete loss of our investments in Studio City. In many of these instances, the Subconcession Contract does not provide a specific cure period within which any such events may be cured and, instead, the Gaming Operator would rely on consultations and negotiations with the Macau government to remedy any such violation.

Under the terms of the Services and Right to Use Arrangements to which Studio City Entertainment, one of our subsidiaries, is a party, the Gaming Operator has agreed to operate Studio City Casino. If, upon termination of the Gaming Operator’s subconcession, Studio City Entertainment were not able to enter into similar arrangements with other gaming concessionaires or subconcessionaires in Macau, Studio City Casino may not be able to continue to operate.

Further, if Studio City Entertainment were to be found unsuitable or to undertake actions that are inconsistent with the Gaming Operator’s subconcession terms and requirements, the Gaming Operator could suffer penalties, including the termination of its subconcession, and the Macau government may determine that Studio City Casino may not continue to operate under the Services and Right to Use Arrangements or at all. This would have a material adverse effect on our financial condition, results of operations and cash flows and could result in defaults under our indebtedness, and a partial or complete loss of our investments in Studio City. For details of the terms of the Services and Right to Use Arrangements, see “Related Party Transactions—Material Contracts with Affiliated Companies—Services and Right to Use Arrangements.”

Under the Gaming Operator’s subconcession, the Macau government is allowed to request various changes in the plans and specifications of the properties operated by the Gaming Operator, including Studio City Casino, and to make various other decisions and determinations that may be binding on us. For example, Macau’s Chief Executive has the right to require the increase of the Gaming Operator’s share capital or that the Gaming Operator provides certain deposits or other guarantees of performance with respect to its obligations in any

 

38


Table of Contents

amount determined by the Macau government to be necessary. The Gaming Operator also needs to first obtain the approval of the Macau governmental authorities before raising certain financing. The Gaming Operator’s ability to incur indebtedness or raise equity may be further restricted by its existing and any future financings. As a result, we cannot assure you that the Gaming Operator will be able to comply with these requirements or any other requirements of the Macau government or with the other requirements and obligations imposed by the subconcession.

The Subconcession Contract also contains various covenants and other obligations as to which the determination of compliance is subjective, and any failure to comply with any such covenant or obligation could result in the termination of the subconcession. For example, requirements of compliance with general and special duties of cooperation and special duties of information may be subjective, and we cannot assure you that the Gaming Operator will always be able to operate gaming activities in a manner satisfactory to the Macau government. Accordingly, we will be impacted by the Gaming Operator’s continuing communications and good faith negotiations with the Macau government to ensure that the Gaming Operator is performing its obligations under the subconcession in a manner that would avoid any violations.

Furthermore, pursuant to the Subconcession Contract, the Gaming Operator is obligated to comply not only with the terms of that agreement, but also with laws, regulations, rulings and orders that the Macau government might issue or enact in the future. We cannot assure you that it will be able to comply with all such laws, regulations, rulings or orders or that any such laws, regulations, rulings or orders would not adversely affect its ability to operate Studio City Casino. If any disagreement arises between the Gaming Operator and the Macau government regarding the interpretation of, or its compliance with, a provision of the Subconcession Contract, we will be relying on its consultation and negotiation process with the applicable Macau governmental agency as described above. During any such consultation, however, the Gaming Operator will be obligated to comply with the terms of the Subconcession Contract as interpreted by the Macau government.

Currently, under the Macau Gaming Law, upon the expiration or termination of the Gaming Operator’s subconcession by the Macau government, all of the Gaming Operator’s casino premises and gaming equipment, including Studio City Casino’s gaming area and equipment, would revert to the Macau government automatically without compensation to the Gaming Operator. Based on information from the Macau government, proposed amendments to the legislation regarding the reversion of casino premises are being considered. We expect that if such amendments take effect, upon the expiration or termination of the Gaming Operator’s subconcession by the Macau government, only the portion of casino premises within the Gaming Operator’s development as then designated by the Macau government (including all gaming equipment) would revert to the Macau government automatically without compensation to the Gaming Operator.

Studio City Casino faces intense competition in the gaming industry of Macau and elsewhere in Asia, and it may not be able to compete successfully.

The gaming industry in Macau and elsewhere in Asia is highly competitive. Our competitors include many of the largest gaming, hospitality, leisure and resort companies in the world. Some of these current and future competitors are larger than us and may have more diversified resources, better brand recognition, and greater access to capital to support their developments and operations in Macau and elsewhere. In particular, in recent years, some of our competitors have opened new properties, expanded operations and/or announced their intention for further expansion and developments in Cotai, where Studio City is located. For example, Galaxy Casino, S.A., or Galaxy, opened Galaxy Macau Resort in Cotai in May 2011 and phase 2 of the Galaxy Macau Resort in May 2015, Sands Cotai Central in Cotai opened in April 2012, Wynn Palace opened in August 2016, Parisian Macao opened in September 2016 and MGM Cotai opened in February 2018. In addition, Sociedade de Jogos de Macau, S.A., or SJM, is currently developing its project in Cotai.

Studio City Casino will also compete to some extent with casinos located in other countries, such as Singapore, the Philippines, Malaysia, South Korea, Vietnam, Cambodia, Australia, New Zealand, Japan and

 

39


Table of Contents

elsewhere in the world, including Las Vegas and Atlantic City in the United States. In addition, a law which conceptually enables the development of integrated resorts in Japan took effect in December 2016, with corresponding legislation providing a legislative framework for the development and implementation of integrated resorts in Japan taking effect in July 2018. Certain other markets may in the future legalize casino gaming, including Taiwan and Thailand. Certain of these gaming markets may not be subject to as stringent regulations as the Macau market. Studio City Casino will also compete with cruise ships operating out of Hong Kong and other areas of Asia that offer gaming. The proliferation of gaming venues in Asia could significantly and adversely affect our business, results of operations, financial condition, cash flows and prospects.

Currently, Macau is the only region in Greater China offering legal casino gaming. Although the Chinese government has strictly enforced its regulations prohibiting domestic gaming operations, there may be casinos in parts of China that are operated illegally and without licenses. In addition, there is no assurance that China will not in the future permit domestic gaming operations. Competition from casinos in China, legal or illegal, could materially adversely affect our business, results of operations, financial condition, cash flows and prospects.

Furthermore, Melco Resorts, as well as the Gaming Operator, may take action to construct and operate new gaming projects or invest in such projects, located in other countries in the Asia region (including new gaming projects in Macau), which, along with their current operations, such as Altira Macau and City of Dreams, may increase the competition Studio City Casino will face. See “—Risks Relating to Our Relationship with Melco Resorts—We may have conflicts of interest with Melco Resorts and, because of Melco Resorts’ controlling ownership interest in our company, we may not be able to resolve such conflicts on favorable terms for us.

Gaming is a highly regulated industry in Macau and adverse changes or developments in gaming laws or regulations could be difficult to comply with or significantly increase costs, which could cause Studio City Casino to be unsuccessful.

Gaming is a highly regulated industry in Macau. Current laws, such as licensing requirements, tax rates and other regulatory obligations, including those for anti-money laundering, could change or become more stringent resulting in additional regulations being imposed upon gaming operations in Macau, including Studio City Casino. Any such adverse developments in the regulation of the gaming industry could be difficult to comply with and could significantly increase costs, which could cause Studio City Casino to be unsuccessful and adversely affect our financial performance.

In September 2009, the Macau government set a cap on commission payments to gaming promoters of 1.25% of net rolling. This policy may limit the Gaming Operator’s ability to develop successful relationships with gaming promoters and attract VIP rolling chip players, which in turn may adversely affect the financial performance of the VIP rolling chip operations at Studio City Casino. Any failure to comply with these regulations may result in the imposition of liabilities, fines and other penalties and may materially and adversely affect the Gaming Operator’s subconcession. See “Regulation—Gaming Promoters Regulations.

In addition, the Macau government imposed regulations and restrictions that affect the minimum age required for entrance into casinos in Macau, location requirements for sites with gaming machine lounges, data privacy and other matters. Any such legislation, regulation or restriction imposed by the Macau government may have a material adverse impact on our operations, business and financial performance. Furthermore, our inability to address any of these requirements or restrictions imposed by the Macau government could adversely affect our reputation and result in criminal or administrative penalties, in addition to any civil liability and other expenses. See “Regulation—Gaming Regulations.”

Also, the Macau government enacted a smoking control legislation which went into effect on January 1, 2013, which generally prohibits smoking on the premises of casinos, except for an area of up to 50% of the casino area open to the public, as determined by the Dispatch of the Chief Executive of Macau. In addition, effective as of October 2014, smoking in general access gaming areas is only permitted in segregated smoking

 

40


Table of Contents

lounges, where no gaming activity is permitted. Smoking in limited access gaming areas, such as VIP gaming rooms, may be permitted, subject to prior authorization from the Chief Executive of Macau. Moreover, in July 2017, Law no. 9/2017 amended the Smoking Prevention and Tobacco Control Law, with effect from January 1, 2018, under which smoking on the premises of casinos shall only be permitted in segregated smoking lounges with no gaming activities, and such segregated smoking lounges are required to be set up within a transition period of one year subsequent to the effective date. During the transition period, existing smoking areas and smoking lounges can be maintained. Studio City Casino currently has a number of designated smoking areas. We cannot assure you that the Macau government will not enact more stringent smoking control legislations. Such limitations imposed on smoking have and may deter potential gaming patrons who are smokers from frequenting casinos in Macau, which could adversely affect our business, results of operations and financial condition. See “Regulation—Smoking Regulations.

Furthermore, in March 2010, the Macau government announced that the number of gaming tables operating in Macau should not exceed 5,500 until the end of the first quarter of 2013. On September 19, 2011, the Secretary for Economy and Finance of the Macau government announced that for a period of ten years thereafter, the total number of gaming tables to be authorized in Macau will increase by an amount equal to an average 3% per annum for ten years. The Macau government subsequently clarified that the allocation of tables over this ten-year period does not need to be uniform and tables may be pre-allocated to new properties in Macau. The Macau government has also determined that tables authorized by the Macau government for mass market gaming operations may not be utilized for VIP gaming operations. These restrictions are not legislated or enacted into statutes or ordinances and, as such, different policies, including in relation to the annual increase rate in the number of gaming tables, may be adopted, and existing policies amended, at any time by the relevant Macau government authorities.

Current Macau laws and regulations concerning gaming and gaming concessions and matters such as prevention of money laundering are fairly recent or there is little precedent on the interpretation of these laws and regulations. While we expect that the Gaming Operator will operate Studio City Casino in compliance in all material respects with all applicable laws and regulations of Macau, these laws and regulations are complex and a court or an administrative or regulatory body may in the future render an interpretation of these laws and regulations or issue new or modified regulations that differ from our or the Gaming Operator’s interpretation, which could have a material adverse effect on the operation of Studio City Casino and on our financial condition, results of operations, cash flows and prospects.

Our activities in Macau are subject to administrative review and approval by various departments of the Macau government. For example, our business activities and Studio City Casino are subject to the administrative review and approval by the DICJ, Macau health department, Macau labor bureau, Macau public works bureau, Macau fire department, Macau finance department and Macau government tourism office. We cannot assure you that we or the Gaming Operator will be able to obtain or maintain all necessary approvals, which may materially affect our business, financial condition, results of operations, cash flows and prospects. Macau law permits redress to the courts with respect to administrative actions. However, such redress is largely untested in relation to gaming regulatory issues.

Studio City Casino is subject to operational risks commonly faced by other gaming facilities in Macau.

Studio City Casino faces operational risks commonly experienced in the gaming industry in Macau. Such risks include, but are not limited to, the following:

 

   

Inability to Collect Gaming Receivables from Credit Customers. The Gaming Operator may grant gaming credit directly to certain customers at Studio City Casino, which will often be unsecured. The Gaming Operator may not be able to collect all of its gaming receivables from its credit customers at Studio City Casino, and we expect that the Gaming Operator will be able to enforce its gaming receivables only in a limited number of jurisdictions, including Macau and under certain

 

41


Table of Contents
 

circumstances, Hong Kong. The Gaming Operator’s inability to collect gaming receivables from credit customers may in turn affect our financial performance.

 

   

Limited Availability of Credit to Gaming Patrons. The Gaming Operator conducts its table gaming activities at Studio City Casino partially on a credit basis. The Gaming Operator extends credit to its gaming promoters and such gaming promoters will also conduct their operations by extending credit to gaming patrons. Any general economic downturn and turmoil in the financial markets may result in broad limitations on the availability of credit from credit sources as well as lengthening the recovery cycle of extended credit. In particular, due to credit conditions in China and the tightening of cross-border fund transfers by the Chinese government to control capital outflows in recent years, the number of visitors to Macau from China, as well as the amounts they are willing to spend in casinos, may decrease, which could have a material adverse effect on our business, financial condition and results of operations.

 

   

Dependence on Relationships with Gaming Promoters. With the rise in casino operations in Macau, the competition for relationships with gaming promoters has increased and is expected to continue to increase. If the Gaming Operator is unable to utilize, maintain and/or develop relationships with gaming promoters, the ability of Studio City Casino to develop VIP rolling chip business will be subject to additional difficulties and the Gaming Operator will have to seek alternative ways to develop and maintain relationships with VIP rolling chip players, which may not be as profitable as relationships developed through gaming promoters. Also, in the event the Macau government reduces the cap on the commission rates payable to gaming promoters, gaming promoters’ incentives to bring travelers to casinos in Macau would be further diminished and certain of the gaming promoters may be forced to cease operations or divert travelers to other regions. Increased regulatory scrutiny of gaming promoters in Macau has resulted, and may continue to result, in the cessation of business of certain gaming promoters, thereby resulting in the remaining gaming promoters having significant leverage and bargaining strength in negotiating agreements, including negotiating changes to existing agreements with the Gaming Operator, the loss of business to competitors or the loss of relationships with certain gaming promoters by the Gaming Operator. These developments may have a material adverse effect on the business, prospects, results of operation and financial condition related to the introduction of the VIP rolling chip operations at Studio City Casino.

 

   

Inability to Control Win Rates. The gaming industry is characterized by an element of chance. In addition to the element of chance, win rates will also be affected by the spread of table limits and factors that are beyond the operator’s control, such as a player’s skill and experience, the mix of games played, the financial resources of players, the volume and mix of bets played and the amount of time players spend on gambling. As a result of the variability in these factors, the actual win rates at Studio City Casino may differ from the theoretical win rates anticipated and could result in less winnings than anticipated.

 

   

Risk of Fraud or Cheating of Gaming Patrons and Staff. Gaming customers may attempt or commit fraud or cheat in order to increase their winnings, possibly in collusion with the casino’s staff. Internal acts of cheating could also be conducted by staff through collusion with dealers, surveillance staff, floor managers or other gaming area staff. Failure to discover such acts or schemes in a timely manner could result in losses in Studio City Casino operations and negative publicity for Studio City. In addition, gaming promoters or other persons could, without the knowledge of the Gaming Operator, enter into betting arrangements directly with patrons on the outcomes of games of chance, thus depriving Studio City Casino of revenues.

 

   

Risk of Counterfeiting. All gaming activities at Studio City Casino’s table games are conducted exclusively with gaming chips which are subject to the risk of alteration and counterfeiting. The Gaming Operator has incorporated a variety of security and anti-counterfeit features to detect altered or counterfeit gaming chips. Despite such security features, unauthorized parties may try to copy gaming chips and introduce, use and cash in altered or counterfeit gaming chips in Studio City’s gaming areas.

 

42


Table of Contents
 

Any negative publicity arising from such incidents could result in losses in Studio City Casino operations and negative publicity for Studio City.

 

   

Risk of Malfunction of Gaming Machines. There is no assurance that the slot machines at Studio City will be functioning properly at all times. If any one or more gaming machines malfunction due to technical or other reasons, the win rates associated with the gaming machines may be affected in a way that adversely impact the revenue of Studio City Casino. In addition, Studio City Casino’s reputation may be materially and adversely affected as a result of any incidents of malfunction.

Any of these risks has the potential to materially and adversely affect Studio City Casino and our business, financial condition, results of operations, cash flows and prospects.

The Macau government could grant additional rights to conduct gaming in the future, which could significantly increase competition in Macau and cause Studio City Casino to lose or be unable to gain or maintain market share.

Pursuant to the terms of the Macau Gaming Law, the Macau government is precluded from granting more than three gaming concessions. Each Concessionaire was permitted to enter into a subconcession agreement with one subconcessionaire. As of the date of this prospectus, the total number of concessions and subconcessions granted in Macau is six. The Macau government is currently considering the process of reviewing, extending or granting gaming concessions or subconcessions for concessions and subconcessions expiring in 2020 and 2022. The policies and laws of the Macau government could result in the grant of additional concessions or subconcessions, which could significantly increase competition in Macau and cause Studio City Casino to lose or be unable to maintain or gain market share, and as a result, adversely affect our business.

We cannot assure you that anti-money laundering policies that have been implemented at Studio City Casino and its compliance with applicable anti-money laundering laws will be effective to prevent Studio City Casino from being exploited for money laundering purposes.

Macau’s free port, offshore financial services and free movement of capital create an environment whereby Macau’s casinos could be exploited for money laundering purposes. Melco Resorts’ and the Gaming Operator’s anti-money laundering policies, which we believe to be in compliance with all applicable anti-money laundering laws and regulations in Macau, are applied to the operation of Studio City Casino. However, we cannot assure you that the Gaming Operator’s, our contractors, agents or the staff performing services at Studio City Casino will continually adhere to such policies or any such policies will be effective in preventing Studio City Casino operations from being exploited for money laundering purposes, including from jurisdictions outside of Macau. We cannot assure you that we will not be subject to any accusation or investigation related to any possible money laundering activities despite the anti-money laundering measures we have adopted and undertaken or that we will adopt and undertake in the future.

The Gaming Operator also deals with significant amounts of cash in Studio City Casino’s operations and is subject to various reporting and anti-money laundering regulations. Any incidents of money laundering, accusations of money laundering or regulatory investigations into possible money laundering activities involving Studio City Casino, its staff, gaming promoters or customers or others with whom it is associated could have a material adverse impact on our reputation, business, cash flow, financial condition, prospects and results of operations. Any serious incident of, or repeated violation of, laws related to money laundering or any regulatory investigation into money laundering activities may cause a revocation or suspension of the subconcession held by the Gaming Operator. For more information regarding anti-money laundering regulations in Macau, see “Regulations—Anti-money Laundering Regulations and Terrorism Financing.”

 

43


Table of Contents

Risks Relating to Our Relationship with Melco Resorts

We are heavily dependent on our shareholder, Melco Resorts, and expect to continue to be dependent on Melco Resorts.

Melco Resorts is a developer, owner and operator of casino gaming and entertainment casino resort facilities in Asia, and our business has benefited significantly from Melco Resorts’ strong market position in Macau and its expertise in both gaming and non-gaming businesses. We cannot assure you we will continue to receive the same level of support from Melco Resorts after we become a public company.

Prior to this offering, Melco Resorts has provided us with substantially all of our financial, administrative, sales and marketing, human resources and legal services and has also provided us with the services of a number of its staff pursuant to the Management and Shared Services Arrangements. Other than our property president and property chief financial officer, all of the Studio City dedicated staff are employed by the Master Service Providers under such arrangements. See “Related Party Transactions—Material Contracts with Affiliated Companies.” After we become a public company, we expect Melco Resorts to continue to provide us with such support services. However, there is no assurance that employees of Master Service Providers, who also support our financial, management, administration and other corporate functions, will be able to carry out their responsibilities in the best interests of Studio City or provide sufficient support for us to operate as an independent public company in compliance with the relevant financial reporting, internal control and other legal and regulatory requirements. In addition, to the extent Melco Resorts does not continue to provide us with such support, we may need to create our own support systems and may encounter operational, administrative and strategic difficulties. Having to create our own support systems due to lack of support from Melco Resorts may cause us to react more slowly than our competitors to industry changes and may divert our management’s attention from running our business or otherwise harm our operations.

In addition, since we will be a public company after this offering, our management team will need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to public companies, including requirements relating to corporate governance, listing standards and securities and investor relations issues. While we were a subsidiary of Melco Resorts, we were indirectly subject to requirements to maintain an effective internal control over financial reporting under Section 404 of the Sarbanes–Oxley Act of 2002. However, as a public company itself, our management will have to evaluate our internal control system independently with new thresholds of materiality and to implement necessary changes to our internal control system. We cannot guarantee that we will be able to do so in a timely and effective manner.

Our business has benefited significantly from our relationship with Melco Resorts. Any negative development in Melco Resorts’ market position or brand recognition may materially and adversely affect our marketing efforts and the strength of our brand.

We are a subsidiary of Melco Resorts and will continue to be a subsidiary of Melco Resorts after this offering, as Melco Resorts is expected to remain our controlling shareholder. We have benefited significantly from our relationship with Melco Resorts in marketing our brand. For example, we have benefited by providing services to Melco Resorts’ long-term customers. We also benefit from Melco Resorts’ strong brand recognition in Macau, which has provided us credibility and a broad marketing reach. If Melco Resorts loses its market position, the effectiveness of our marketing efforts through our association with Melco Resorts may be materially and adversely affected. In addition, any negative publicity associated with Melco Resorts will likely have an adverse impact on the effectiveness of our marketing as well as our reputation and our brand.

 

44


Table of Contents

We may have conflicts of interest with Melco Resorts and, because of Melco Resorts’ controlling ownership interest in our company, we may not be able to resolve such conflicts on favorable terms for us.

Conflicts of interest may arise between Melco Resorts and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest include:

 

   

Other Gaming, Retail and Entertainment Resorts in Macau. Melco Resorts owns other gaming, retail and entertainment resorts in Macau and the Gaming Operator, as a wholly-owned subsidiary of Melco Resorts, operates casinos and gaming areas at such resorts owned by Melco Resorts. The ownership and operation of City of Dreams and Altira Macau by Melco Resorts and the Gaming Operator may divert their attention and resources. For example, VIP rolling chip operations at Studio City Casino are operated by the Gaming Operator under the Services and Right to Use Arrangements and the VIP tables used in such operations were initially allocated by the Macau government for operation by the Gaming Operator at gaming areas of the Gaming Operator’s other properties in Macau. The Gaming Operator may discontinue the operation of such VIP tables at Studio City by providing a 12 month advance notice at any time after October 1, 2018. There is no assurance the operation of such VIP tables at the Studio City Casino will continue after October 1, 2019. Such discontinuation of operation of VIP tables at Studio City Casino, as well as any strategic decisions made by Melco Resorts to focus on their other projects in Macau rather than us, could materially and adversely affect our financial condition and results of operations.

 

   

Allocation of Business Opportunities. Melco Resorts, as well as the Gaming Operator, may take action to construct and operate new gaming projects or invest in such projects, located in the Asian region (including new gaming projects in Macau) or elsewhere, which, along with their current operations, including City of Dreams and Altira Macau, may divert their attention and resources. For example, in 2015, Melco Resorts opened City of Dreams Manila, a casino, hotel, retail and entertainment resort in Manila, the Philippines. Melco Resorts has also provided, and may continue to provide, certain services to Melco International and its subsidiaries that are not our subsidiaries in relation to the City of Dreams Mediterranean project, which is expected to be launched by 2021, and temporary and satellite casinos prior to the 2021 expected launch date. We could face competition from these other gaming projects. Due to the Management and Shared Services Arrangements we have with Melco Resorts, should Melco Resorts decide to focus more attention on gaming projects located in other areas, including in jurisdictions that may be expanding or commencing their gaming industries, or should economic conditions or other factors result in a significant decrease in gaming revenues and number of patrons in Macau, Melco Resorts may make strategic decisions to focus on their other projects rather than us, which could adversely affect our development and operation of Studio City and future growth.

 

   

Related Party Transactions. We have entered into a number of related party transactions, including the Management and Shared Services Arrangements, that we believe allow us to leverage off the experience and scale of Melco Resorts. While these arrangements were entered into at pre-agreed rates that we believe are commercially reasonable, the determination of such commercial terms were subject to judgment and estimates and we may have obtained different terms for similar types of services had we entered into such arrangements with independent third parties or had we not been a subsidiary of Melco Resorts.

 

   

Our Board Members and Executive Officers May Have Conflicts of Interest. Certain of our directors are also the directors and/or executive officers of Melco Resorts and our property president also serves on Melco Resorts’ executive committee. In addition, our senior management team (including staff of Melco Resorts designated to Studio City under the Management and Shared Services Arrangements) also has reporting obligations to Melco Resorts. These relationships could create, or appear to create, conflicts of interest when these persons are faced with decisions with potentially different implications for Melco Resorts and us. See “—Risks Relating to Our Business—We utilize services provided by subsidiaries of Melco Resorts, including hiring and training of personnel for Studio City” and “—Certain of our directors and executive officers hold a substantial amount of share options, restricted

 

45


Table of Contents
 

shares and ordinary shares of Melco Resorts, which could create an appearance of potential conflicts of interests.” We plan to appoint independent directors to our Board of Directors, and our audit and risk committee will consist solely of independent directors. However, due to the nature of their role as independent directors, such directors may not have access to the same information, resources and support as directors who are also directors of Melco Resorts, which may hinder their ability to eliminate all conflicts of interest presented by our relationships with Melco Resorts.

 

   

Developing Business Relationships with Melco Resorts’ Competitors. So long as Melco Resorts remains as our controlling shareholder, we may be limited in our ability to do business with its competitors, such as other gaming operators in Macau. This may limit our ability to market our services for the best interests of our company and our other shareholders.

Although our company will be a public company after this offering, we expect to operate, for as long as Melco Resorts is our controlling shareholder, as a subsidiary of Melco Resorts. Melco Resorts may from time to time make strategic decisions that it believes are in the best interests of its business as a whole, including our company. These decisions may be different from the decisions that we would have made on our own. Melco Resorts’ decisions with respect to us or our business may be resolved in ways that favor Melco Resorts and therefore Melco Resorts’ own shareholders, which may not coincide with the interests of our other shareholders. We may not be able to resolve any potential conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with a non-controlling shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved among unaffiliated parties, this may not succeed in practice.

Certain of our directors and executive officers hold a substantial amount of share options, restricted shares and ordinary shares of Melco Resorts, which could create an appearance of potential conflicts of interests.

Certain of our directors and executive officers hold a substantial amount of share options, restricted shares and ordinary shares of Melco Resorts, and the value of such share options and restricted shares are related to the value of the ordinary shares of Melco Resorts. In addition, our directors and executive officers are eligible to participate in the share incentive plan of Melco Resorts. See “Management—Share Incentive Plan.” The direct and indirect interests of our directors and executive officers in the ordinary shares of Melco Resorts and the presence of certain directors and executive officers of Melco Resorts on our board of directors could create, or appear to create, conflicts of interest with respect to matters involving both Melco Resorts and us that could have different implications for Melco Resorts and us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between Melco Resorts and us or the affiliates of Melco Resorts and us, regarding the terms of the arrangements governing the offering and our relationship with Melco Resorts following the offering. These arrangements include the Services and Right to Use Arrangements, the Management and Shared Services Arrangements and any commercial agreements between Melco Resorts and us, or the affiliates of Melco Resorts and us. Potential conflicts of interest may also arise out of any commercial arrangements that Melco Resorts and us may enter into in the future. Similar potential conflicts may also arise related to the pursuit of certain opportunities, including growth opportunities in Macau or elsewhere.

Changes in Melco Resorts share ownership, including a change of control of its subsidiaries shares, could result in our inability to draw loans or cause events of default under our indebtedness, or could require us to prepay or make offers to repurchase certain indebtedness.

Credit facility agreements relating to certain of our indebtedness contain change of control provisions, including in respect of Melco Resorts’ obligations relating to the control and/or ownership of certain of its and our subsidiaries including their and our assets. Under the terms of such credit facility agreements, the occurrence of certain change of control events, including a decline below certain thresholds in the aggregate direct or indirect shareholdings in certain of Melco Resorts’ subsidiaries, including Studio City Holdings Five Limited,

 

46


Table of Contents

Studio City Finance Limited and Studio City Investments Limited, may result in an event of default and/or a requirement to prepay the credit facilities in relation to such indebtedness in full.

The terms of the agreement of certain indebtedness also contain change of control provisions whereby the occurrence of a relevant change of control event will require us to offer to repurchase the securities at a price equal to 101% of their principal amount, plus accrued and unpaid interest and, if any, additional amounts and other amount specified under such indebtedness to the date of repurchase.

Any occurrence of these events could be outside our control and could result in events of default and cross-defaults which may cause the termination and acceleration of our credit facilities and other indebtedness and potential enforcement of remedies by our lenders or note holders (as the case may be), which would have a material adverse effect on our financial condition and results of operations.

Risks Relating to Conducting Business in Macau

Our business, financial condition and results of operations may be materially and adversely affected by any economic slowdown in Macau, China and nearby Asia regions as well as globally.

All of our operations are in Macau. Accordingly, our business development plans, results of operations and financial condition may be materially adversely affected by significant political, social and economic developments in Macau and China. A slowdown in economic growth in China could adversely impact the number of visitors from China to Studio City as well as the amount they are willing to spend in our hotel, restaurants and other facilities as well as at Studio City Casino, which could have a material adverse effect on our results of the operations and financial condition. A number of measures taken by the Chinese government in recent years to control the rate of economic growth, including those designed to tighten credit and liquidity, have led to a slowdown of China’s economy. According to the National Bureau of Statistics of China, China’s GDP growth rate was 6.9% in 2017, which is similar to the 6.7% growth rate in 2016, and any slowdown in its future growth may have an adverse impact on financial markets, currency exchange rates, as well as the spending of visitors in Macau and Studio City. Since April 2018, the Renminbi has experienced a general decline in value against the U.S. Dollar and the value of the major stock exchanges in mainland China have also experienced recent declines. There is no guarantee that economic downturns, whether actual or perceived, any further decrease in economic growth rates or an otherwise uncertain economic outlook in China will not occur or persist in the future, that they will not be protracted or that governments will respond adequately to control and reverse such conditions, any of which could materially and adversely affect our business, financial condition and results of operations.

In addition, the global macroeconomic environment is facing challenges, including the escalation of the European sovereign debt crisis since 2011, the end of quantitative easing by the U.S. Federal Reserve, the economic slowdown in the Eurozone in 2014 and the escalation of international trade conflicts, including the escalation of trade tariffs and related retaliatory measures. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets, and over the conflicts involving Ukraine and Syria and potential conflicts involving the Korean peninsula. Any severe or prolonged slowdown in the global economy may materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.

Studio City Casino’s operations could be adversely affected by foreign exchange restrictions on the Renminbi.

Gaming operators in Macau are currently prohibited from accepting wagers in Renminbi, the currency of China. There are currently restrictions on the export of the Renminbi outside of China, including to Macau. For

 

47


Table of Contents

example, Chinese citizens traveling abroad are only allowed to take a total of RMB20,000 plus the equivalent of up to US$5,000 out of China. Moreover, it was recently announced that a new annual limit of RMB100,000 (US$15,370) on the aggregate amount that can be withdrawn overseas from Chinese bank accounts was set by the Chinese government, with effect on January 1, 2018. In addition, the Chinese government’s ongoing anti-corruption campaign has led to tighter monetary transfer regulations, including real-time monitoring of certain financial channels, reducing the amount that China-issued ATM cardholders can withdraw in each withdrawal, imposing a limit on the annual aggregate amount that may be withdrawn and the launch of facial recognition and identity card checks with respect to certain ATM users, which could disrupt the amount of money visitors can bring from mainland China to Macau. Furthermore, the Macau government has launched identity card checks with respect to certain ATM users and recently recommended banks perform adequate due diligence and monitoring of merchants with respect to usage of point-of-sales machines, such as cash registers where a customer is charged for goods or services purchased. These measures may limit liquidity availability and curb capital outflows. In addition, on June 12, 2017, a new law with respect to the control of cross-border transportation of cash and other negotiable instruments to the bearer was enacted and came into effect on November 1, 2017. In accordance with such law, all individuals entering Macau with an amount in cash or negotiable instrument to the bearer equal to or higher than the amount of MOP120,000 (US$14,975) as determined by the Chief Executive of Macau are required to declare such amount to the customs authorities. For further details, please refer to “Regulation—Control of Cross-border Transportation of Cash Regulations.” Restrictions on the export of the Renminbi and related measures may impede the flow of gaming customers from China to Macau, inhibit the growth of gaming in Macau and negatively impact the operation of Studio City Casino.

Policies, campaigns and measures adopted by the PRC and/or Macau governments from time to time could materially and adversely affect our operations.

Our operating results may be adversely affected by:

 

   

tightening of travel restrictions to Macau or austerity measures which may be imposed by the Chinese government;

 

   

changes in government policies, laws and regulations, or in the interpretation or enforcement of these policies, laws and regulations;

 

   

changes in cross-border fund transfer and/or foreign exchange regulations or policies effected by the Chinese and/or Macau governments;

 

   

measures taken by the Chinese government to deter marketing of gaming activities to mainland Chinese residents by foreign casinos;

 

   

measures that may be introduced to control inflation, such as interest rate increases or bank account withdrawal controls; and

 

   

changes in the rate or method of taxation by the Macau government.

A significant number of the gaming customers of Studio City Casino come from, and are expected to continue to come from, China. Any travel restrictions imposed by China could disrupt the number of patrons visiting Studio City from China. Since mid-2003, under the Individual Visit Scheme, or IVS, Chinese citizens from certain cities have been able to travel to Macau individually instead of as part of a tour group. In mid-2008 through 2010, the Chinese government adjusted its visa policy and limited the number of visits Chinese citizens may make to Macau in a given time period. China also banned “zero fare tours,” popular among visitors to Macau from mainland China, whereby travelers avail the services of tour guides at minimal or no cost if they agree to shop in designated areas in exchange. Further, in 2014, the Chinese government and the Macau government tightened visa transit policies for mainland China residents. Starting on July 1, 2014, the Macau government has tightened transit visa rule implementation, limiting such travelers to a five-day stay, with documented proof that they were going to a third destination. From July 2015, Macau eased the restrictions and

 

48


Table of Contents

again allowed mainland Chinese passport holders who transit via the city to stay for up to seven days. While the Chinese government has in the past restricted and then loosened IVS travel frequently, it has recently indicated its intention to maintain tourism development by opening the IVS to more Chinese cities to visit Macau. In March 2016, for instance, the Ministry of Public Security of China announced a new practice to make it easier for some mainland Chinese citizens to apply for the IVS visa. It is unclear whether these and other measures will continue to be in effect or become more restrictive in the future. A decrease in the number of visitors from China would adversely affect Studio City’s results of operations.

In addition, certain policies and campaigns implemented by the Chinese government may lead to a decline in the number of patrons visiting our properties and the amount of spending by such patrons. The strength and profitability of the gaming business depends on consumer demand for integrated resorts in general and for the type of luxury amenities that a gaming operator offers. Recent initiatives and campaigns undertaken by the Chinese government have resulted in an overall dampening effect on the behavior of Chinese consumers and a decrease in their spending, particularly in luxury good sales and other discretionary spending. For example, the Chinese government’s ongoing anti-corruption campaign has had an overall chilling effect on the behavior of Chinese consumers and their spending patterns both domestically and abroad. In addition, the number of patrons visiting Studio City may be affected by the Chinese government’s focus on deterring marketing of gaming to mainland Chinese residents by casinos and its initiatives to tighten monetary transfer regulations, increase monitoring of various transactions, including bank or credit card transactions, reduce the amount that China-issued ATM cardholders can withdraw in each withdrawal and impose a limit on the annual aggregate amount that may be withdrawn. Recent conviction of staff of a foreign casino in China in relation to gaming related activities in China have created further regulatory uncertainty on marketing activities in China.

Our operations in Macau are also exposed to the risk of changes in laws and policies that govern operations of Macau-based companies. Tax laws and regulations may also be subject to amendment or different interpretation and implementation, thereby adversely affecting our profitability after tax. Further, certain terms of the Gaming Operator’s subconcession may be subject to renegotiations with the Macau government in the future, including the premium amount the Gaming Operator will be obligated to pay the Macau government in order to continue operations at Studio City Casino. As Studio City Entertainment is expected to fund part of the premium for the operation of Studio City Casino, increased premium due to any renegotiations could have a material adverse effect on the results of our operations and financial condition.

Uncertainties in the legal systems in the PRC may expose us to risks.

Gaming related activities in the PRC, including marketing activities, are regulated by the PRC government and subject to various PRC laws and regulations. The PRC legal system continues to rapidly evolve and the interpretations of many laws, regulations and rules are not always uniform. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all. As a result, we may not be aware of all policies and rules imposed by the PRC authorities which may affect or relate to our business and operations. There is also no assurance that our interpretation of the laws and regulations that affect our activities and operations in the PRC is or will be consistent with the interpretation and application by the PRC governmental authorities. These uncertainties may impede our ability to assess our legal rights or risks relating to our business and activities. Any changes in the laws and regulations, or in the interpretation or enforcement of these laws and regulations, which affect gaming related activities in the PRC could have a material and adverse effect on our business and prospects, financial condition and results of operations.

In addition, PRC administrative and court authorities have significant discretion in interpreting and implementing statutory terms. Such discretion of the PRC administrative and court authorities increases the uncertainties in the PRC legal system and makes it difficult to evaluate the likely outcome of any administrative and court proceedings in the PRC. Any litigation or proceeding in the PRC may be protracted and result in substantial costs and diversion of our resources and management attention. Any such litigation or proceeding could have a material adverse effect on our business, reputation, financial condition and results of operations.

 

49


Table of Contents

Terrorism, violent criminal acts and the uncertainty of war and other factors affecting discretionary consumer spending and leisure travel may reduce visitation to Macau and harm our operating results.

The strength and profitability of our business will depend on consumer demand for integrated resorts and leisure travel in general. Recent terrorist and violent criminal activities in Europe, the United States, Southeast Asia and elsewhere, military conflicts in the Middle East and natural disasters such as typhoons, tsunamis and earthquakes, among other things, have negatively affected travel and leisure expenditures. For example, in June 2017, there were multiple deaths at the Resorts World Manila entertainment complex in Pasay, Metro Manila, Philippines when a gunman caused a stampede and set fire to casino tables and slot machine chairs. Terrorism and other criminal acts of violence could have a negative impact on international travel and leisure expenditures, including lodging, gaming and tourism. We cannot predict the extent to which such acts may affect us, directly or indirectly, in the future.

In addition, other factors affecting discretionary consumer spending, including amounts of disposable consumer income, fears of recession, lack of consumer confidence in the economy, change in consumer preferences, high energy, fuel and other commodity costs and increased cost of travel may negatively impact our business. An extended period of reduced discretionary spending and/or disruptions or declines in airline travel could materially adversely affect our business, results of operations and financial condition.

An outbreak of widespread health epidemics, contagious disease or any other outbreak may have an adverse effect on the economies of Macau or nearby regions and may have a material adverse effect on our business, financial condition and results of operations.

Our business could be materially and adversely affected by the outbreak of widespread health epidemics, such as swine flu, avian influenza, severe acute respiratory syndrome (SARS), Middle East respiratory syndrome (MERS), Zika or Ebola. The occurrence of such health epidemics, prolonged outbreak of an epidemic illness or other adverse public health developments in China or elsewhere in the world could materially disrupt our business and operations. Such events could significantly impact our industry and cause a temporary closure of the facilities we use for our operations, which would severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. Guangdong Province, China, which is located across the Zhuhai Border from Macau, has confirmed several cases of avian flu. Fully effective avian flu vaccines have not been developed and there is evidence that the H5N1 virus is constantly evolving so we cannot assure you that an effective vaccine can be discovered or commercially manufactured in time to protect against the potential avian flu pandemic. In the first half of 2003, certain countries in Asia experienced an outbreak of SARS, a highly contagious form of atypical pneumonia, which seriously interrupted economic activities and caused the demand for goods and services to plummet in the affected regions.

The perception that an outbreak of health epidemics or contagious disease may occur may also have an adverse effect on the economic conditions of countries in Asia. In addition, our operations could be disrupted if any of our staff or others involved in our operations were suspected of having the swine flu, avian influenza, SARS, MERS, Zika or Ebola as this could require us to quarantine some or all of such staff or persons or disinfect the facilities used for our operations. Furthermore, any future outbreak may restrict economic activities in affected regions, which could result in reduced business volume and the temporary closure of our offices or otherwise disrupt our business operations and adversely affect our results of operations.

Macau is susceptible to typhoons and heavy rainstorms that may damage our property and disrupt our operations.

Macau’s subtropical climate and location on the South China Sea renders it susceptible to typhoons, heavy rainstorms and other natural disasters. In the event of a major typhoon, such as Typhoon Hato in August 2017, or other natural disaster in Macau, Studio City may be severely disrupted and adversely affected. Any flooding, unscheduled interruption in the technology or transportation services or interruption in the supply of public

 

50


Table of Contents

utilities is likely to result in an immediate, and possibly substantial, loss of revenues due to a shutdown of Studio City, including operations at Studio City Casino. Although we benefit from certain insurance coverage with respect to these events, our coverage may not be sufficient to fully indemnify us against all direct and indirect costs, including loss of business, which could result from substantial damage to, or partial or complete destruction of, our properties or other damages to the infrastructure or economy of Macau.

Risks Relating to Our ADSs and This Offering

We are a holding company. Our sole material asset after completion of this offering will be our equity interest in MSC Cotai and we will be accordingly dependent upon distributions from MSC Cotai to pay dividends and cover our corporate and other expenses.

We are a holding company and will have no material assets other than our equity interest in MSC Cotai. We have also undertaken that we will not own equity interests in any other entity other than MSC Cotai and that we will contribute to MSC Cotai all net proceeds received by us from sales of equity securities and sales of assets. Please see “Corporate History and Organizational Structure.” Because we will have no independent means of generating revenue, our ability to pay dividends, if any, and cover our corporate and other expenses is dependent on the ability of MSC Cotai to generate revenue to pay such dividends and expenses. This ability, in turn, may depend on the ability of MSC Cotai’s subsidiaries to make distributions to it. The ability of MSC Cotai and its subsidiaries to make such distributions will be subject to, among other things, (i) the applicable laws and regulations of the relevant jurisdictions that may limit the amount of funds available for distribution, (ii) restrictions in the Participation Agreement or relevant debt instruments issued by MSC Cotai or its subsidiaries in which it directly or indirectly holds an equity interest and (iii) the availability of funds to distribute. To the extent that we need funds and MSC Cotai or its subsidiaries are restricted from making such distributions or payments under applicable law or regulation or under the terms of any financing arrangements, or are otherwise unable to provide such funds, our liquidity and financial condition could be materially and adversely affected.

Our listing was authorized by the Macau government subject to certain conditions imposed on the Gaming Operator, us and our direct and indirect shareholders. Failure by the Gaming Operator, us or our direct and indirect shareholders to comply with such conditions may result in our obligation to delist the ADSs from the New York Stock Exchange or have a material adverse effect on the operation of Studio City Casino.

Our listing was authorized by the Macau government subject to the continued satisfaction of certain conditions including the following:

 

   

the company continues to hold, directly or indirectly, 100% of the equity interest of its subsidiary, Studio City Entertainment;

 

   

Melco Resorts continues to hold, directly or indirectly, at least 50.1% of the equity interest in us;

 

   

Melco International continues to hold, directly or indirectly, the majority of the equity interest in Melco Resorts; and

 

   

Mr. Lawrence Ho, directly or indirectly, continues to hold the majority of the equity interest in Melco International to control such entity.

Under such authorization, the Gaming Operator is required to annually provide the Macau government with evidence with respect to the compliance with the above conditions. In addition, under such authorization, we and the Gaming Operator are also required to comply with the conditions imposed by the Macau government in connection with its approval of our entry into the Services and Right to Use Arrangements.

The Macau government also has the right to revoke the listing authorization if it deems that the listing is contrary to the public interest or in case of breach of the mentioned conditions. In case of revocation of the listing

 

51


Table of Contents

authorization by the Macau government, we may be required by the Macau government to delist the ADSs from the New York Stock Exchange. Failure to do so could result in the approval of the Services and Right to Use Arrangements being revoked, which would prevent us from receiving any amounts thereunder, in a closure order being issued with respect to the Studio City Casino or in the suspension or termination of the Gaming Operator’s Subconcession and consequently we may be unable to offer any gaming facilities at Studio City.

An active trading market for our ordinary shares or our ADSs may not develop and the trading price for our ADSs may fluctuate significantly.

Our ADSs will be traded on the New York Stock Exchange. We have no current intention to seek a listing for our ordinary shares on any stock exchange or quoted for trading on any over-the-counter trading system. Prior to the completion of this offering, there has been no public market for our ADSs or our ordinary shares, and we cannot assure you that a liquid public market for our ADSs will develop. If an active public market for our ADSs does not develop following the completion of this offering, the market price and liquidity of our ADSs may be materially and adversely affected.

The initial public offering price for our ADSs was determined by negotiation between us and the underwriters based upon several factors, and we can provide no assurance that an active trading market for our ADSs will develop or that the trading price of our ADSs after this offering will not decline below the initial public offering price. As a result, investors in our securities may experience a significant decrease in the value of their ADSs.

The trading price of our ADSs may be volatile and subject to fluctuations in the future, which could result in substantial losses to investors.

The trading price of our ADSs may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in Macau or China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

 

   

uncertainties or delays relating to the financing, completion and successful operation of our remaining project for Studio City;

 

   

developments in the Macau market or other Asian gaming markets, including the announcement or completion of major new projects by our competitors;

 

   

general economic, political or other factors that may affect Macau, where Studio City is located;

 

   

changes in the economic performance or market valuations of the gaming and leisure industry companies;

 

   

changes in the Gaming Operator’s market share of the Macau gaming market;

 

   

regulatory developments affecting us or our competitors;

 

   

actual or anticipated fluctuations in our quarterly or annual operating results;

 

   

announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

 

   

changes in financial estimates by securities analysts;

 

   

detrimental adverse publicity about us, Studio City or our industries;

 

   

additions or departures of key personnel;

 

   

fluctuations in the exchange rates between the U.S. dollar, H.K. dollar, Pataca and Renminbi;

 

52


Table of Contents
   

release or expiration of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

 

   

sales or perceived sales of additional shares or ADSs or securities convertible or exchangeable or exercisable for shares or ADSs;

 

   

potential litigation or regulatory investigations; and

 

   

rumors related to any of the above, irrespective of their veracity.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

Because our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.

If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$             per ADS. See “Dilution” for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.

If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our ADSs, the market price for our ADSs and trading volume could decline.

The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline.

Techniques employed by short sellers may drive down the market price of our ADSs.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

 

53


Table of Contents

Public companies that have substantially all of their operations in Greater China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

It is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, and any investment in our ADSs could be greatly reduced or even rendered worthless.

Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.

Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying SC Class A Shares of the depositary and in accordance with the provisions of the deposit agreement. Advance notice of at least seven days is required for the convening of our annual general meeting and other shareholders meetings. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw SC Class A Shares represented by your ADSs to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. The depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to convene a shareholder meeting.

Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement. In addition, parties to the Participation Agreement have agreed to resolve any disputes by arbitration.

As a holder of our ADSs, you are a party to the deposit agreement under which our ADSs are issued. Under the deposit agreement, any action or proceeding against or involving the depositary arising out of or based upon the deposit agreement or the transactions contemplated thereby or by virtue of you owning the ADSs may only be instituted in a state or federal court in New York, New York. In addition, under the deposit agreement, you, as a holder of our ADSs, will have irrevocably waived any objection which you may have to the laying of venue of any such proceeding and irrevocably submitted to the exclusive jurisdiction of such courts in any such action or proceeding. The depositary may, however, in its sole discretion, require that any dispute or difference arising from the relationship created by the deposit agreement be referred to and finally settled by an arbitration proceeding to be conducted under the terms described in the deposit agreement, which may include claims arising under the U.S. federal securities laws and claims not in connection with this offering, although the arbitration provisions do not preclude you from pursuing claims under the U.S. federal securities laws in federal courts. Furthermore, we may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the terms and subject to the conditions of the deposit agreement as amended. For more information, see “Description of American Depositary Shares.”

 

54


Table of Contents

In addition, the Participation Agreement, pursuant to which MSC Cotai grants the participation interest to New Cotai, provides that all disputes arising out of the Participation Agreement must be resolved through arbitration proceedings subject to certain limited exceptions and such provision will affect the manner by which New Cotai or any other parties to the Participation Agreement may pursue any claim or action arising out of the Participation Agreement. For more information, see “Corporate History and Organizational Structure—Participation Agreement.”

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, subject to the depositary’s right to require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with applicable state and federal law. The enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federal securities laws has not been finally adjudicated by the United States Supreme Court. However, based on past court decisions, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under the U.S. federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement as a jury trial.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings, and you may not receive cash dividends if it is unlawful or impractical to make them available to you.

We may, from time to time, distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act, or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities

 

55


Table of Contents

Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our SC Class A Shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of SC Class A Shares your ADSs represent. However, the depositary may, at its discretion, decide that it is unlawful, inequitable or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. Also, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive such distribution. Except as otherwise provided under the Registration Rights Agreement, we have no obligation to register under U.S. securities laws any ADSs, SC Class A Shares, rights or other securities received through such distributions. See “Description of Share Capital—Registration Rights.” We also have no obligation to take any other action to permit the distribution of ADSs, SC Class A Shares, rights or anything else to holders of ADSs.

Substantial future sales or perceived potential sales of our ADSs, ordinary shares or other equity securities in the public market could cause the price of our ADSs to decline significantly.

After completion of this offering, New Cotai will own 72,511,760 SC Class B Shares, representing a             % voting, non-economic interest in our company. New Cotai will also have a Participation Interest, which will entitle New Cotai to receive from MSC Cotai an amount equal to             % of the amount of any distribution, dividend or other consideration paid by MSC Cotai to us, subject to adjustments, exceptions and conditions. Under the Participation Agreement, New Cotai and its permitted transferees will be entitled to exchange its Participation Interest for SC Class A Shares, as described under “Corporate History and Organizational Structure.” We will grant registration rights with respect to the SC Class A Shares delivered in exchange for Participation Interests. See “Corporate History and Organizational Structure” and “Description of Share Capital—Registration Rights.”

Sales of substantial amounts of our ADSs in the public market after the completion of this offering, including upon the exchange of SC Class A Shares by New Cotai or its permitted transferees, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our ability to raise capital through equity offerings in the future. The ADSs sold in this offering will be freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements. The ADSs represent interests in our SC Class A Shares. We would, subject to market forces, expect there to be a close correlation in the price of our ADSs and the price of the SC Class A Shares and any factors contributing to a decline in one market is likely to result to a similar decline in another.

There will be              ADSs (representing              SC Class A Shares) outstanding immediately after this offering, or              ADSs (representing              SC Class A Shares) if the underwriters exercise their over-allotment option in full. [In connection with this offering, we and our existing shareholders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or otherwise dispose of any ADSs, ordinary shares or similar securities or any securities convertible into or exchangeable or exercisable for our ordinary shares or ADSs, for a period ending [180] days after the date of this prospectus without the prior written consent of the underwriters, subject to certain exceptions.] However, the underwriters may release these securities from these restrictions at any time, subject to applicable regulations of the Financial Industry Regulatory Authority. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs. See

 

56


Table of Contents

“Underwriting” and “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our securities after this offering.

The depositary for our ADSs will give us a discretionary proxy to vote our SC Class A Shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for our ADSs, the depositary will give us a discretionary proxy to vote our SC Class A Shares underlying your ADSs at shareholders’ meetings if you do not give voting instructions to the depositary, unless:

 

   

we have failed to timely provide the depositary with our notice of meeting and related voting materials;

 

   

we have instructed the depositary that we do not wish a discretionary proxy to be given;

 

   

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

 

   

a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

 

   

voting at the meeting is made on a show of hands.

The effect of this discretionary proxy is that, if you fail to give voting instructions to the depositary, you cannot prevent our SC Class A Shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence our management. Holders of our SC Class A Shares are not subject to this discretionary proxy.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of our ADSs for return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. See “Dividend Policy.” Therefore, you should not rely on an investment in our ADSs as a source for any future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of the laws of the Cayman Islands. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under the laws of the Cayman Islands, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.

You may be subject to limitations on the transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate

 

57


Table of Contents

events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we deem or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may have difficulty enforcing judgments obtained against us.

We are a company incorporated under the laws of the Cayman Islands and substantially all of our assets are located outside the United States. All of our current operations are conducted in Macau. As a result, it may be difficult or impossible for you to bring an action against us in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. It may also be difficult for you to enforce in the Cayman Islands and Macau courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our directors and executive officers. In addition, there is uncertainty as to whether the courts of the Cayman Islands and Macau would recognize or enforce judgments of U.S. courts against us or such individuals predicated upon the civil liability provisions of the securities laws of the United States or any state. It is also uncertain whether such Cayman Islands and Macau courts would be competent to hear original actions brought in the Cayman Islands and Macau against us or such individuals predicated upon the securities laws of the United States or any state. For more information regarding the relevant laws of the Cayman Islands and Macau, see “Enforceability of Civil Liabilities.”

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to domestic public companies in the United States.

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New York Stock Exchange. Press releases relating to financial results and material events will be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers.

As a Cayman Islands exempted company applying to list our ADSs on the New York Stock Exchange, we are subject to New York Stock Exchange corporate governance listing standards. However, the New York Stock Exchange rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from New York Stock Exchange corporate governance listing standards. For instance, shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. In addition, we rely on this “home country practice” exception and do not have a majority of independent directors serving on our board. This may make it more difficult for you to obtain the information needed to establish any

 

58


Table of Contents

facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

Upon completion of this offering and the Assured Entitlement Distribution, MCE Cotai will control a majority of our outstanding ordinary shares, making us a “controlled company” within the meaning of the New York Stock Exchange corporate governance rules. As a “controlled company,” we are eligible to, and, in the event we no longer qualify as a foreign private issuer, we intend to elect not to comply with certain of the New York Stock Exchange corporate governance standards, including the requirement that a majority of directors on our board of directors be independent directors.

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

We will incur increased costs as a result of being a public company.

We will become a public company upon completion of this offering, and we expect to incur significant legal, accounting and other expenses that we do not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the New York Stock Exchange, impose various requirements on the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. We expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

We are a Cayman Islands exempted company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

 

59


Table of Contents

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as shareholders of a U.S. public company. For a discussion of significant differences between the provisions of the Companies Law of the Cayman Islands and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital—Differences in Corporate Law.”

We intend to apply the net proceeds of this offering and the private placement pursuant to the Assured Entitlement Distribution to acquire newly-issued MSC Cotai Shares. However, management of MSC Cotai has broad discretion as to how the proceeds MSC Cotai receives from us will be applied.

We intend to apply the net proceeds of this offering and the private placement pursuant to the Assured Entitlement Distribution to acquire newly-issued MSC Cotai Shares. In turn, MSC Cotai intends to apply the net proceeds it receives from us primarily for the repayment of certain of our existing indebtedness and for working capital and other general corporate purposes. See “Use of Proceeds” for additional information. However, MSC Cotai’s management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment and discretion of MSC Cotai’s management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of our ADSs could be subject to adverse United States federal income tax consequences.

A non-United States corporation will be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if either (i) at least 75% of its gross income for such taxable year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be a PFIC for United States federal income tax purposes for our current taxable year ending December 31, 2018 or in the foreseeable future. However, the determination of whether or not we are a PFIC according to the PFIC rules is made on an annual basis and will depend on the composition of our income and assets and the value of our assets from time to time. Therefore, changes in the composition of our income or assets or the value of our assets may cause us to become a PFIC. The determination of the value of our assets (including goodwill not reflected on our balance sheet) may be based, in part, on the quarterly market value of our ADSs, which is subject to change and may be volatile.

The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain IRS guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.

 

60


Table of Contents

If we are a PFIC for any taxable year during which a United States person holds ADSs, certain adverse United States federal income tax consequences could apply to such United States person. See “Taxation—Certain United States Federal Income Tax Considerations—Passive Foreign Investment Company.”

 

61


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND INDUSTRY DATA

This prospectus contains forward-looking statements that involve risks and uncertainties, and relate to future events, including our future operating results and conditions, our prospects and our future financial performance and condition, all of which are largely based on our current expectations and projections. All statements other than statements of current or historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

In some cases, you can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements about:

 

   

our goals and strategies;

 

   

the expected growth of the gaming and leisure market in Macau and visitation in Macau;

 

   

our ability to successfully operate Studio City;

 

   

our ability to obtain all required governmental approval, authorizations and licenses for the remaining project;

 

   

our ability to obtain adequate financing for the remaining project;

 

   

our ability to develop the remaining project in accordance with our business plan, completion time and within budget;

 

   

our compliance with conditions and covenants under the existing and future indebtedness;

 

   

construction cost estimates for the remaining project, including projected variances from budgeted costs;

 

   

our ability to enter into definitive contracts with contractors with sufficient skill, financial strength and relevant experience for the construction of the remaining project;

 

   

capital and credit market volatility;

 

   

our ability to raise additional capital, if and when required;

 

   

increased competition from other casino hotel and resort projects in Macau and elsewhere in Asia, including the three concessionaires (SJM, Wynn Resorts Macau and Galaxy) and subconcessionaires (including MGM Grand Paradise, S.A., or MGM Grand, and Venetian Macau) in Macau;

 

   

government policies and regulation relating to the gaming industry, including gaming license approvals and the legalization of gaming in other jurisdictions, and leisure market in Macau;

 

   

the uncertainty of tourist behavior related to spending and vacationing at casino resorts in Macau;

 

   

fluctuations in occupancy rates and average daily room rates in Macau;

 

   

the liberalization of travel restrictions on PRC citizens and convertibility of the Renminbi;

 

   

the completion of infrastructure projects in Macau;

 

   

our ability to retain and increase our customers;

 

   

our ability to offer new services and attractions;

 

62


Table of Contents
   

our future business development, financial condition and results of operations;

 

   

the expected growth in, market size of and trends in the market in Macau;

 

   

expected changes in our revenues, costs or expenditures;

 

   

our expectations regarding demand for and market acceptance of our brand and business;

 

   

our ability to continue to develop new technologies and/or upgrade our existing technologies;

 

   

our expectation regarding the use of proceeds from this offering;

 

   

growth of and trends of competition in the gaming and leisure market in Macau; and

 

   

general economic and business conditions globally and in Macau.

You should read this prospectus and the documents that we refer to in this prospectus with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in Macau’s gaming sector, a market with intense competition, and in an evolving and heavily regulated environment. We have a highly leveraged business model. New risk factors and uncertainties may emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should read this prospectus and the documents that we refer to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

This prospectus also contains statistical data and estimates that we obtained from industry publications and reports generated by government or third-party providers of market intelligence. Although we have not independently verified the data, we believe that the publications and reports are reliable. See “Risk Factors—Risks Relating to Our Business—Industry data, projections and estimates contained in this prospectus are inherently uncertain and subject to interpretation. Accordingly, you should not place undue reliance on such information.”

 

63


Table of Contents

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering and the private placement pursuant to the Assured Entitlement Distribution of approximately US$            million, or approximately US$            million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. These estimates are based upon an assumed initial offering price of US$            per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover page of this prospectus. A US$1.00 change in the assumed initial public offering price of US$            per ADS would, in the case of an increase, increase and, in the case of a decrease, decrease the net proceeds of this offering by US$            million, or approximately US$            million if the underwriters exercise their option to purchase additional ADSs in full.

The primary purposes of this offering are to create a public market for SC Class A Shares in the form of ADSs for the benefit of all shareholders and obtain additional capital. We plan to use the net proceeds of this offering and the Assured Entitlement Distribution to acquire newly-issued MSC Cotai Shares. In turn, MSC Cotai intends to apply the net proceeds it receives from us primarily for the following purposes:

 

   

US$            million for repayment of certain of our existing indebtedness; and

 

   

the remainder for working capital and other general corporate purposes.

For details of our existing indebtedness, including interest rate and maturity thereof, see “Description of Indebtedness.” The amounts and timing of any expenditures will vary depending on the amount of cash generated by our operations, and the rate of growth, if any, of our business, and our plans and business conditions. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management will have significant flexibility in applying and discretion to apply the net proceeds of the offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

Pending use of the net proceeds, we intend to hold our net proceeds in demand deposits.

 

64


Table of Contents

DIVIDEND POLICY

We have not previously declared or paid cash dividends and do not have any plan to declare or pay any dividends in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law and certain restrictions set forth in the instruments in relation to our outstanding borrowings. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends on our SC Class A Shares, we will pay those dividends which are payable in respect of the SC Class A Shares underlying our ADSs to the depositary, as the registered holder of such SC Class A Shares, and the depositary then will pay such amounts to the ADS holders who will receive payment to the same extent as holders of our SC Class A Shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our SC Class A Shares, if any, will be paid in U.S. Dollars.

We are a holding company incorporated in the Cayman Islands. For our cash requirements, including any payment of dividends to our shareholders, we rely on dividends distributed by our subsidiaries in Macau, Hong Kong and the British Virgin Islands to MSC Cotai and MSC Cotai to us. The Macau regulations may restrict the ability of our Macau subsidiaries to pay dividends to us. For example, our Macau subsidiaries are subject to a Macau complementary tax of up to 12% on taxable income, as defined in the relevant tax laws. However, we were granted a Macau complementary tax exemption through 2021 on profits generated from income received from the Gaming Operator, to the extent that such income results from gaming operations within Studio City Casino and has been subject to gaming tax. We remain subject to Macau complementary tax on our non-gaming profits. See “Regulation—Taxation.” Furthermore, regulations in Macau currently require our subsidiaries incorporated in Macau to set aside a minimum of 25% of the relevant entity’s profit after taxation to their legal reserve until the balance of the legal reserve reaches a level equivalent to 50% of its share capital and the legal reserve is not available for distribution to the shareholders of such subsidiaries. See “Regulation—Distribution of Profits Regulations.”

In addition, the respective indentures governing our existing notes including the 2012 Notes and the 2016 Notes and the agreement for the 2016 Credit Facility contain certain covenants that, subject to certain exceptions and conditions, restrict the payment of dividends by some of our subsidiaries. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Restrictions on Distributions.”

 

65


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2018:

 

   

on an actual basis; and

 

   

on a pro forma basis to give effect to i) the completion of the Organizational Transactions, including the reclassification of MCE Cotai’s 60% equity interest in our company into 108,767,640 SC Class A Shares, the exchange of New Cotai’s 40% equity interest in our company into 72,511,760 SC Class B Shares and a non-voting, non-shareholding economic Participation Interest in MSC Cotai; ii) the issuance and sale of             SC Class A Shares in the form of ADSs by us in this offering at an assumed initial public offering price of US$            per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, and the private placement pursuant to the Assured Entitlement Distribution at an assumed initial public offering price of US$             per SC Class A Share, which is the mid-point of the estimated range of the initial public offering price per ADS shown on the front cover of this prospectus divided by the number of SC Class A Shares represented by one ADS, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and iii) the application of the net proceeds of this offering and the Assured Entitlement Distribution to acquire newly-issued MSC Cotai Shares, in turn, MSC Cotai will apply part of the net proceeds of US$             million for repayment of certain of our existing indebtedness, with the remainder of US$             million for working capital and other general corporate purposes.

You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As of June 30, 2018  
     Actual     Pro Forma  
     (US$ thousands, except for share and
per share data)
 

Cash and cash equivalents

     294,878    
  

 

 

   

 

 

 

Long-term debt, net

     2,003,181    
  

 

 

   

 

 

 

Shareholders’ equity and participation interest:

    

Ordinary shares (par value US$1; 200,000 shares authorized, 18,127.94 shares issued and outstanding on an actual basis)

     18    

Class A ordinary shares (par value US$0.0001; 1,927,488,240 shares authorized;              shares issued and outstanding on a pro forma basis)

     —      

Class B ordinary shares (par value US$0.0001; 72,511,760 shares authorized; 72,511,760 shares issued and outstanding on a pro forma basis)

     —      

Additional paid-in capital(1)

     1,512,705    

Accumulated other comprehensive income

     488    

Accumulated losses

     (791,343  
  

 

 

   

 

 

 

Total shareholders’ equity(1)

     721,868    
  

 

 

   

 

 

 

Participation interest

     —      
  

 

 

   

 

 

 

Total capitalization(1)

     2,725,049    
  

 

 

   

 

 

 

 

(1)

A US$1 increase (decrease) in the assumed initial public offering price of US$            per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, would increase (decrease) each of additional paid-in capital and total shareholders’ equity by US$             million, and total capitalization by US$            million, assuming the number of ADSs offered by us, as set forth on the front cover of this prospectus, remains the same and no change to the number of SC Class A Shares issued by us and subscribed by Melco International in the private placement pursuant to the Assured Entitlement Distribution, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

66


Table of Contents

DILUTION

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and the pro forma net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per SC Class A Share is substantially in excess of the pro forma net tangible book value per SC Class A Share after this offering.

Because New Cotai does not own any SC Class A Shares or other economic interests in Studio City International, we have presented dilution in pro forma net tangible book value per SC Class A Share and per ADS assuming that New Cotai exchanged all of its Participation Interest for newly-issued SC Class A Shares and the cancellation of all of its SC Class B Shares in order to more meaningfully present the dilutive impact to the investors in this offering. We refer to the assumed exchange of all of New Cotai’s Participation Interest for SC Class A Shares as described in the previous sentence as the “Assumed Exchange.”

The pro forma net tangible book value as of June 30, 2018 would have been US$             million, or US$            per SC Class A Share, and US$            per ADS. Pro forma net tangible value per SC Class A Share represents the amount of our total tangible assets, less total liabilities, divided by the number of SC Class A Shares after giving effect to (i) the Organizational Transactions; and (ii) the Assumed Exchange.

Without taking into account any other changes in the pro forma net tangible book value after June 30, 2018, other than to give effect to (i) the Organizational Transactions; (ii) the Assumed Exchange; and (iii) the issuance and sale by us of             SC Class A Shares in the form of ADSs in this offering at an assumed initial public offering price of US$            per ADS, the mid-point of the estimated range of the initial public offering price shown on the front cover of this prospectus, and the issuance and sale by us of              SC Class A Shares in the private placement pursuant to the Assured Entitlement Distribution at an assumed initial public offering price of US$             per SC Class A Share, which is the mid-point of the estimated range of the initial public offering price per ADS shown on the front cover of this prospectus divided by the number of SC Class A Shares represented by one ADS, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming the underwriters’ option to purchase additional ADSs is not exercised, our pro forma as adjusted net tangible book value as of June 30, 2018 would have been US$             million; or US$             per SC Class A Share, and US$            per ADS.

This represents an immediate increase in net tangible book value of US$            per SC Class A Share, or US$            per ADS, to existing shareholders of SC Class A Shares, after giving effect to the Organizational Transactions and the Assumed Exchange; and an immediate dilution in net tangible book value of US$            per SC Class A Share, or US$            per ADS, to investors purchasing ADSs in this offering. The following table illustrates such dilution:

 

     Per SC Class A Share      Per ADS  

Assumed initial public offering price

     

Pro forma net tangible book value as of June 30, 2018 after giving effect to (i) the Organizational Transactions; and (ii) the Assumed Exchange

     

Pro forma as adjusted net tangible book value after giving effect to (i) the Organizational Transactions; (ii) the Assumed Exchange; and (iii) this offering and the private placement pursuant to the Assured Entitlement Distribution

     

Increase in pro forma net tangible book value attributable to this offering and the private placement pursuant to the Assured Entitlement Distribution

     

Dilution in net tangible book value to new investors in this offering

     

A US$1.00 increase or decrease in the assumed initial public offering price of US$            per ADS would increase or decrease our pro forma as adjusted net tangible book value by US$            million, or US$             per SC Class A Share and US$             per ADS, and would increase or decrease the dilution per share and ADS to

 

67


Table of Contents

the investors in this offering by US$             and US$             respectively, assuming no change to the number of ADSs offered by us as set forth on the front cover of this prospectus and no change to the number of SC Class A Shares issued by us and subscribed by Melco International in the private placement pursuant to the Assured Entitlement Distribution, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Our pro-forma as adjusted net tangible book value following the completion of this offering and the private placement pursuant to the Assured Entitlement Distribution is subject to adjustment based on the actual initial public offering price of the ADSs and other terms of this offering determined at pricing.

The following table summarizes, on a pro forma basis as of June 30, 2018, the differences between the existing shareholders of SC Class A Shares, after giving effect to the Organizational Transactions and the Assumed Exchange as of June 30, 2018, and the new investors with respect to the number of SC Class A Shares (in the form of ADSs purchased from us in this offering and in connection with the Assured Entitlement Distribution), the total consideration paid and the average price per SC Class A Share paid and per ADS at an assumed initial public offering price of US$            per ADS before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The total number of SC Class A Shares does not include SC Class A Shares underlying the ADSs issuable upon exercise of the option to purchase additional ADSs which we granted to underwriters.

 

     SC Class A Shares
Purchased
    Total Consideration     Average Price
per SC Class
A Share
     Average
Price per
ADS
 
     Number      Percent     Amount      Percentage  
     (US$, except for share numbers and percentages)  

Existing shareholders(1)

                             

New investors

                             
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

        100.0        100.0     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

After giving effect to the Organizational Transactions and the Assumed Exchange.

 

68


Table of Contents

ENFORCEABILITY OF CIVIL LIABILITIES

Cayman Islands

We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability to take advantage of certain benefits associated with the Cayman Islands, such as:

 

   

political and economic stability;

 

   

an effective judicial system;

 

   

a favorable tax system;

 

   

the absence of exchange control and currency restrictions on dividends; and

 

   

the availability of professional and support services.

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

 

   

the securities laws of the Cayman Islands are different from those of the United States and provide less protection to investors; and

 

   

Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Our constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our executive officers, directors and shareholders, be subject to arbitration.

Substantially all of our operations, including our administrative and corporate operations, are intended to be conducted in Macau and Hong Kong, and substantially all of our assets are expected to be located in Macau. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process within the United States upon us or these persons, or to enforce judgments obtained in U.S. courts against us or them, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. It may also be difficult for you to enforce judgments obtained in United States courts based on the civil liability provisions of the U.S. federal securities laws against us and our executive officers and directors.

We have appointed Cogency Global Inc. as our agent to receive service of process with respect to any action brought against us in the U.S. District Court for the Southern District of New York in connection with this offering under the federal securities laws of the United States or of any State in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York in connection with this offering under the securities laws of the State of New York.

We have been advised by Walkers, our Cayman Islands counsel, that any final and conclusive monetary judgment of a competent foreign court for a definite sum may be the subject of enforcement proceedings in the courts of the Cayman Islands under the common law doctrine of obligation by action on the debt evidenced by the judgment of such competent foreign court. It is not guaranteed that this remedy would be available, but on general principles, such enforcement proceedings can be expected to be successful provided that: (i) the foreign court had jurisdiction in the matter and the parties subject to such judgment either submitted to such jurisdiction or were resident or carrying on business within such jurisdiction and were duly served with process; (ii) the judgment given by the foreign court was not in respect of penalties, taxes, fines or similar fiscal or revenue obligations; (iii) the judgment was not obtained by fraud; (iv) recognition or enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; and (v) the proceedings pursuant to which judgment was obtained were not contrary to natural justice.

 

69


Table of Contents

Macau

Manuela António - Lawyers and Notaries, our counsel as to Macau law, has advised us that there is uncertainty as to whether the courts of Macau would recognize or enforce judgments of United States courts obtained against us or our executive officers, directors or shareholders predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. Manuela António - Lawyers and Notaries has advised further that a final and conclusive monetary judgment for a definite sum obtained in a federal or state court in the United States would be treated by the courts of Macau as a cause of action in itself so that no retrial of the issues would be necessary, provided that: (i) such decision is final and the court had jurisdiction in the matter and the defendant either submitted to such jurisdiction or was resident or carrying on business within such jurisdiction and was duly served with process; (ii) due process was observed by such court, with equal treatment given to both parties to the action, and the defendant had the opportunity to submit a defense; (iii) the judgment given by such court was not in respect of penalties, taxes, fines or similar fiscal or tax revenue obligations; (iv) in obtaining judgment there was no fraud on the part of the person in whose favor judgment was given or on the part of the court; (v) recognition or enforcement of the judgment in Macau would not be contrary to public policy; (vi) the proceedings pursuant to which judgment was obtained were not contrary to natural justice; and (vii) any interest charged to the defendant does not exceed three times the official interest rate, which is currently 9.75% per annum, over the outstanding payment (whether of principal, interest, fees or other amounts) due.

 

70


Table of Contents

CORPORATE HISTORY AND ORGANIZATIONAL STRUCTURE

Corporate History

We were established as an international business company, limited by shares, under the laws of the British Virgin Islands as CYBER ONE AGENTS LIMITED on August 2, 2000 and subsequently re-registered as a business company, limited by shares, under the British Virgin Islands Business Companies Act, 2004. New Cotai acquired a 40% equity interest in us on December 6, 2006. New Cotai is a private limited liability company organized in Delaware that is indirectly owned by investment funds managed by Silver Point Capital, L.P., Oaktree Capital Management, L.P. and other third-party investors. MCE Cotai, a wholly owned subsidiary of Melco Resorts, acquired a 60% equity interest in us on July 27, 2011. Melco Resorts is an exempted company incorporated with limited liability under the laws of the Cayman Islands and its American Depositary Shares are listed on the NASDAQ Global Select Market in the United States. On January 17, 2012, our name was changed from CYBER ONE AGENTS LIMITED to STUDIO CITY INTERNATIONAL HOLDINGS LIMITED.

In October 2001, we were granted a land concession in Cotai by the Macau government for the development of Studio City, a cinematically-themed and integrated entertainment, retail and gaming resort. Studio City commenced operations on October 27, 2015. We conduct our principal activities through our subsidiaries, which are primarily located in Macau. We currently operate the non-gaming operations of Studio City. The Gaming Operator operates the Studio City Casino. See “Business—Our Relationship with Melco Resorts” and “Related Party Transactions—Material Contracts with Affiliated Companies.”

Prior to or concurrently with the completion of this offering, we will engage in a series of “Organizational Transactions,” described below, through which substantially all of our assets and liabilities will be contributed to our subsidiary, MSC Cotai, a business company limited by shares incorporated in the British Virgin Islands, in exchange for all of the outstanding equity interests in MSC Cotai. In connection with the “Organizational Transactions” described below, we will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands.

Immediately prior to the Organizational Transactions, 60% of the equity interest in us was directly held by MCE Cotai and 40% of the equity interest in us was directly held by New Cotai.

Organizational Transactions

The following transactions, referred to collectively as the “Organizational Transactions,” have been or will each be completed prior to the completion of this offering. The Organizational Transactions are conducted pursuant to the Implementation Agreement among MCE Cotai, Melco Resorts, New Cotai, MSC Cotai and us. See “—Implementation Agreement.”

 

   

MSC Cotai was incorporated as a business company limited by shares in the British Virgin Islands.

 

   

We will enter into the Transfer Agreement with MSC Cotai to provide for the transfer by us and the assumption by MSC Cotai of substantially all of our assets and liabilities, in exchange for all of the outstanding equity interests in MSC Cotai. See “—Transfer Agreement.”

 

   

We will amend and restate our memorandum of association and articles of association to, among other things, authorize two classes of ordinary shares, the SC Class A Shares and the SC Class B Shares. See “Description of Share Capital.” Each SC Class A Share and each SC Class B Share will entitle its holder to one vote on all matters to be voted on by shareholders generally and holders of SC Class A Shares and SC Class B Shares will vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law or our memorandum of association and articles of association. See “Description of Share Capital—Voting Rights.” Holders of the SC Class B Shares do not have any right to receive dividends or distributions upon our liquidation or winding up or to otherwise share in our profits and surplus assets.

 

71


Table of Contents
   

MCE Cotai’s 60% equity interest in our company will be reclassified into SC Class A Shares.

 

   

New Cotai’s 40% equity interest in our company will be exchanged for SC Class B Shares, which have only voting and no economic rights. Through its SC Class B Shares, New Cotai will have voting rights in us, and we will control MSC Cotai.

 

   

In addition, New Cotai will have a non-voting, non-shareholding economic participation interest, or Participation Interest, in MSC Cotai, the terms of which will be set forth in the Participation Agreement that will be entered into by MSC Cotai, New Cotai and us. See “—Participation Agreement.”

 

   

The Participation Interest will entitle New Cotai to receive from MSC Cotai an amount equal to 66-2/3% of the amount of any distribution, dividend or other consideration paid by MSC Cotai to us, subject to adjustments, exceptions and conditions as set out in the Participation Agreement and further described in “—Participation Agreement”. The 66-2/3% represents the equivalent of New Cotai’s 40% interest in us prior to the Organizational Transactions.

 

   

The Participation Agreement will also provide that New Cotai will be entitled to exchange all or a portion of its Participation Interest for a number of SC Class A Shares subject to exceptions and adjustments as set out in the Participation Agreement. See “—Participation Agreement.” When New Cotai exchanges all or a portion of the Participation Interest for SC Class A Shares pursuant to the terms of exchange set forth in the Participation Agreement and described herein, a proportionate number of SC Class B Shares will be deemed surrendered and automatically cancelled for no consideration as set out in the Participation Agreement.

 

   

We will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands prior to the completion of this offering.

In connection with the completion of this offering, we will issue             ADSs (representing             SC Class A Shares) to the investors in this offering (or             ADSs, representing             SC Class A Shares, if the underwriters exercise their option in full to purchase additional SC Class A Shares in the form of ADSs) in exchange for net proceeds of approximately US$             million (or approximately US$             million if the underwriters exercise their option in full to purchase additional SC Class A Shares in the form of ADSs), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Upon the completion of this offering, we will contribute the proceeds of this offering to MSC Cotai in exchange for             MSC Cotai Shares.

As a result of the Organizational Transactions and this offering, immediately following this offering:

 

   

the investors in this offering will collectively own             ADSs (representing             SC Class A Shares) representing a             % economic and voting interest in our company;

 

   

MCE Cotai will own 108,767,640 SC Class A Shares, representing a             % voting and economic interest in our company;

 

   

New Cotai will own 72,511,760 SC Class B Shares, representing a             % voting, non-economic interest in our company;

 

   

SC Class B Shares will collectively represent approximately             % of the voting power in us;

 

   

New Cotai will have a Participation Interest, which will entitle New Cotai to receive from MSC Cotai an amount equal to             % of the amount of any distribution, dividend or other consideration paid by MSC Cotai to us, subject to adjustments, exceptions and conditions; and

 

   

we will own all MSC Cotai Shares, representing 100% of the outstanding equity interests in MSC Cotai and 100% of the voting power in MSC Cotai.

The diagram below depicts our expected organizational structure immediately following completion of this offering. This diagram is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us, or owning a beneficial interest in us.

 

72


Table of Contents

LOGO

 

(1)

Studio City Holdings Five Limited also holds 50% in one non-voting share.

(2)

Studio City Holdings Five Limited also holds 1% of the voting equity interest.

 

73


Table of Contents
(3)

Studio City Holdings Five Limited also holds 3.85% of the voting equity interest.

(4)

Studio City Holdings Five Limited also holds 0.02% of the voting equity interest.

(5)

Studio City Holdings Four Limited also holds 3.96% of the voting equity interest.

(6)

Studio City Company Limited also holds 4% of the voting equity interest.

(7)

Upon the completion of this offering, New Cotai will have a Participation Interest in MSC Cotai, which will represent its economic right to receive an amount equal to             % of the dividends, distributions or other consideration paid to us by MSC Cotai, if any, from time to time. New Cotai may exchange all or a portion of its Participation Interest for SC Class A Shares, subject to certain conditions. See “—Participation Agreement.”

(8)

Prior to the completion of this offering, Studio City International will undergo a series of organizational transactions, as a part of which it will redomicile by way of continuation as an exempted company incorporated with limited liability under the laws of the Cayman Islands.

(9)

Jointly owned by Studio City Hospitality and Services Limited, Studio City Hotels Limited, Studio City Entertainment Limited, Studio City Retail Services Limited and Studio City Developments Limited.

Amended and Restated Memorandum and Articles of Association of MSC Cotai

Prior to the completion of this offering, we will amend and restate MSC Cotai’s existing memorandum and articles of association. The form of MSC Cotai’s amended and restated memorandum and articles of association to be in effect upon completion of this offering will be filed as an exhibit to the registration statement of which this prospectus forms a part.

Share Capital. All MSC Cotai Shares will be held by Studio City International. The number of outstanding MSC Cotai Shares will equal the number of outstanding SC Class A Shares. The amended and restated memorandum and articles of association of MSC Cotai will also provide that MSC Cotai may not issue equity securities ranking senior in priority to the MSC Cotai Shares and may only issue equity and equity-linked securities to us.

Governance. We, as the sole holder of MSC Cotai Shares, will own 100% of the voting power of MSC Cotai and will have the sole right to appoint and replace directors of MSC Cotai. MSC Cotai will not be obligated to appoint more than one director.

Securities Issuances. The amended and restated memorandum and articles of association of MSC Cotai will provide that if we issue SC Class A Shares (including pursuant to the terms of exchange set forth in the Participation Agreement and described below) or other equity securities, MSC Cotai will issue to us (1) in the case of an issuance of SC Class A Shares, new MSC Cotai Shares, or (2) in the case of an issuance of other Studio City International equity securities, equivalent new equity securities in MSC Cotai.

Expenses. Pursuant to the Transfer Agreement and the Participation Agreement, MSC Cotai will agree to bear all fees and expenses that we incur, including all expenses associated with this offering, listing on a securities exchange, director and officer insurance, director fees and maintaining our corporate existence and reimburse us for any such fees and expenses that are paid by us.

Indemnification and Exculpation. The amended and restated memorandum and articles of association will provide for indemnification, to the fullest extent permitted by law, of the directors and officers of MSC Cotai and their respective subsidiaries or affiliates.

Amendments. The amended and restated memorandum and articles of association may be amended with the consent of the holders of a majority in voting power of the outstanding MSC Cotai Shares (and, in some cases, by a resolution of the directors of MSC Cotai), subject to the terms of the Participation Agreement.

Implementation Agreement

We have entered into the Implementation Agreement with MCE Cotai, Melco Resorts, New Cotai and MSC Cotai to govern our arrangements with respect to the Organizational Transactions, including the order in which such transactions are to occur.

 

74


Table of Contents

Implementation Transactions. The Implementation Agreement provides that the parties to the agreement will implement the Organizational Transactions in accordance with the terms and conditions of the agreement.

Company Share Issuances. Under the Implementation Agreement, we agreed that we will contribute to MSC Cotai any net proceeds received by us from this offering in exchange for a number of ordinary shares of MSC Cotai equal to the number of SC Class A Shares issued by us in this offering. MSC Cotai agreed that it will accept the contribution and issue such number of SC Class A Shares to us.

Transfer Agreement

Prior to the completion of this offering, we will enter into the Transfer Agreement with MSC Cotai to provide for the transfer by us and the assumption by MSC Cotai of substantially all of our assets and liabilities, in exchange for all of the outstanding equity interests in MSC Cotai.

Contribution of Transferred Assets. The Transfer Agreement provides that we will contribute to MSC Cotai substantially all of our assets, including all direct interests of certain subsidiaries, all contracts and all intellectual property, subject to certain exceptions identified in the Transfer Agreement.

Assumption of Transferred Liabilities. Pursuant to the Transfer Agreement, MSC Cotai will assume substantially all of our liabilities described above.

Share Issuance. In consideration for the contribution by us of substantially all of our assets and liabilities, MSC Cotai will issue to us new ordinary shares, following which we will continue to be the sole holder of all of its outstanding ordinary shares. In addition, as discussed above, MSC Cotai will agree to bear all fees and expenses that we incur, including all expenses associated with this offering, listing on a securities exchange, director and officer insurance, director fees and maintaining our corporate existence and reimburse us for any such fees paid by us.

Participation Agreement

As part of the Organizational Transactions, Studio City International, MSC Cotai and New Cotai will enter into the Participation Agreement under which MSC Cotai will grant the Participation Interest to New Cotai (as the sole initial holder of the Participation Interest). Pursuant to the terms of the Participation Agreement, New Cotai or any permitted transferees to whom all or part of the Participation Interest may be transferred (collectively referred to as the Participants) will be entitled to receive from MSC Cotai a ratable proportionate amount of the distributions and dividends paid by MSC Cotai to Studio City International, as further described below. The Participation Agreement will also provide that the Participants will be entitled to exchange all or a portion of its Participation Interest, along with the deemed surrender and automatic cancellation of a corresponding number of SC Class B Shares, for a number of SC Class A Shares.

Payments on the Participation Interest. Generally, Participants will be entitled to receive a ratable proportionate amount of the distributions and dividends paid by MSC Cotai to Studio City International. Such ratable proportionate amount due to each Participant will generally be determined by multiplying the amount of the relevant distribution or dividend paid by MSC Cotai to Studio City International by the number of percentage points represented by such Participant’s Participation Interest, subject to adjustment from time to time as set forth in the Participation Agreement (the “Participation Percentage”). Immediately prior to this offering, the Participation Percentage will be 66-2/3%. Immediately following this offering, the Participation Interest will provide New Cotai (as the sole initial participant) with the economic right to receive an amount equal to             % of all dividends and distributions paid by MSC Cotai to Studio City International.

Adjustments to Participation Interest and the Number of SC Class B Shares Held. Generally, the Participation Interest will be subject to adjustments in the case of (i) the new issuances of MSC Cotai Shares to

 

75


Table of Contents

Studio City International in exchange for capital contributions by Studio City International to MSC Cotai (including as a result of this offering), (ii) repurchases and redemptions by MSC Cotai of MSC Cotai Shares, and (iii) any exchanges of the Participation Interest, as follows. In addition, the number of SC Class B Shares held by each Participant will be adjusted by Studio City International from time to time so that the voting power represented by such SC Class B Shares is equal to the economic right represented by the SC Class A Shares that such Participant would receive if such Participant would exchange its entire Participation Interest for SC Class A Shares at such time.

Capital Contributions. Upon any SC Class A Share issuance by Studio City International, Studio City International will contribute all proceeds to MSC Cotai and MSC Cotai will issue the same number of new MSC Cotai shares to Studio City International and the Participation Interest will be adjusted to reflect the dilution that would have occurred if the Participants had been holding a corresponding number of SC Class A Shares instead of the Participation Interest. This back-to-back arrangement for share issuances by Studio City International and MSC Cotai will apply to share issuances (i) to non-affiliates, (ii) to affiliates that are approved by Studio City International directors that are disinterested in the transaction, (iii) for assured entitlement arrangements, and (iv) pursuant to public offerings. Issuances to affiliates, unless they are made through public offerings, will generally be subject to pre-emption as further described below.

Share Repurchases and Redemptions. In the event that MSC Cotai carries out a share redemption or repurchase of MSC Cotai Shares (the proceeds of which must be used by Studio City International to redeem SC Class A Shares in a back-to-back arrangement), the Participation Interest will be adjusted to reflect the effect of such share redemption or repurchase if the Participants had been holding a corresponding number of SC Class A Shares instead of the Participation Interest.

Exchanges of Participation Interest. A Participant may elect, from time to time, to exchange its Participation Interest, in whole or in part, for SC Class A Shares. When electing to exchange, a Participant must deliver an exchange notice to MSC Cotai, which notice must be delivered at least five business days prior to the proposed exchange date; provided, that settlement may not occur later than 90 days from the notice date. The exchanging Participant may withdraw its exchange notice at any time prior to the exchange date. Each party will bear its own expenses in connection with an election to exchange. If an election to exchange request is withdrawn, the Participant will reimburse MSC Cotai for all out-of-pocket expenses incurred by MSC Cotai and Studio City International in connection with such withdrawn exchange. Following any exchange of all or a portion of the Participation Interest for SC Class A Shares, the Participation Interest will be reduced to reflect the decrease in number of SC Class A Shares that such Participant would be entitled to receive post-exchange if all of the remaining Participation Interest were to be exchanged.

Mandatory Exchanges. In case of certain change of control events relating to Studio City International, distributions to be made upon MSC Cotai’s liquidation, dissolution or unwinding or when the holders of the Participation Interest hold less than the specified minimum threshold set out in the Participation Agreement in Studio City International resulting in a termination of the Participation Agreement, and in certain other cases, any outstanding Participation Interest must be surrendered to MSC Cotai (along with the corresponding number of SC Class B Shares) by the holders for SC Class A Shares, or, at MSC Cotai’s option, for cash in certain cases.

Preemptive Rights. If Studio City International proposes to offer equity securities solely or primarily to Melco Resorts or one of its affiliates (except in connection with a public offering, equity incentive plan or assured entitlement arrangements), each Participant will have the pro rata right to purchase an increase in its Participation Interest so as to maintain its then-existing Participation Percentage, subject to certain conditions. To the extent practicable, MSC Cotai must notify the holders of the Participation Interest in writing prior to such sale of equity securities. If the Participant does not elect to purchase any additional Participation Interest within 15 business days, the Participant will be deemed to have rejected the offer. If the Participant elects to participate, it is required to pay the corresponding purchase price to MSC Cotai at the price as specified in the offer. In addition, if Studio City International grants any right, option or warrant (other than in connection with any equity

 

76


Table of Contents

plan) (i) at a price per share less than the current price of average SC Class A Shares, or (ii) that does not expire by the 30th day after such grant, then MSC Cotai must grant to each Participant similar rights, options or warrants, on a pro rata basis, to subscribe for or to purchase additional Participation Interests so as to maintain its then-existing Participation Percentage, subject to certain conditions.

Other Provisions

Expenses. Pursuant to the Transfer Agreement and the Participation Agreement, MSC Cotai will agree to bear all fees and expenses that we incur, including all expenses associated with this offering, listing on a securities exchange, director and officer insurance, director fees and maintaining our corporate existence and reimburse us for any such fees and expenses that are paid by us.

Capital Contributions. Studio City International will be required to contribute to MSC Cotai all net proceeds received by it from sales of equity securities and sales of assets.

Debt Arrangements. If Studio City International enters into any debt financing or other borrowing arrangement, Studio City International will be required to loan the entire proceeds from such financing or borrowing arrangement to MSC Cotai on the same terms and conditions that Studio City International borrowed such proceeds.

HoldCo Relationship. Studio City International will covenant that it will always own all of the issued and outstanding MSC Cotai Shares, and that it will not own equity interests in any other entity.

Permitted Transferees. Holders of the Participation Interests will be able to transfer all or part of their Participation Interest and any rights in respect thereof to certain permitted transferees, as provided in the Participation Agreement, subject to certain conditions. The total Participation Interest percentage will not be changed as a result of such transfers. At any given time, the number of participants may not exceed the prescribed number set out in the Participation Agreement and any transfer in violation of such limit or other applicable provisions of the Participation Agreement will be null and void.

Termination, Governing Law and Arbitration. The Participation Agreement will terminate when the holders of the Participation Interest hold less than the specified minimum threshold set out in the participation agreement in Studio City International. The Participation Agreement will be governed by New York law, and any disputes, other than certain disputed calculations under the Participation Agreement and any claims seeking injunctive relief, which can be sought in courts in Hong Kong, are intended to be resolved by arbitration sitting in Hong Kong including any disputes under the U.S. federal securities laws and claims not in connection with this offering. We believe arbitration provisions in commercial agreements are generally respected by federal courts and state courts of New York.

Our Relationship with Melco International

Since February 16, 2017, Melco International has been our majority shareholder through its subsidiary, Melco Resorts; the ADSs of Melco Resorts are listed on the NASDAQ Global Select Market. Upon the completion of this offering, Melco International will remain the majority shareholder of Melco Resorts.

Hong Kong Stock Exchange Matters of Melco International

Under Practice Note 15 under the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited, this offering is deemed a “spin-off” transaction by Melco International for which Melco International requires approval by the Hong Kong Stock Exchange. On July 28, 2017, the Hong Kong Stock Exchange agreed that Melco International may proceed with the “spin-off” transaction. Pursuant to Practice Note 15, Melco International must make available to its shareholders an “assured entitlement” to a certain portion of our shares.

 

77


Table of Contents

As our ordinary shares are not expected to be listed on any stock exchange, Melco International intends to effect the Assured Entitlement Distribution by providing to its shareholders a “distribution in specie,” or distribution of our ADSs in kind. The distribution will be made without any consideration being paid by Melco International’s shareholders. Melco International’s shareholders who are entitled to fractional ADSs, who elect to receive cash in lieu of ADSs and who are located in the United States or are U.S. persons, or are otherwise ineligible holders, will only receive cash in the Assured Entitlement Distribution.

Concurrently with this offering as a separate transaction, Melco International intends to purchase from us new SC Class A Shares needed for the distribution in specie at the public offering price per SC Class A Share, which is the public offering price per ADS divided by the number of SC Class A Shares represented by one ADS. Melco International currently intends to purchase from us new SC Class A Shares with an aggregate purchase price of US$             million, for the purpose of the assured entitlement distribution in specie. The Assured Entitlement Distribution will only be made if this offering is completed.

The purchase of SC Class A Shares and distribution in specie of ADSs by Melco International are not part of this offering.

 

78


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

We derived the unaudited pro forma condensed consolidated financial information set forth below through the application of pro forma adjustments to our unaudited condensed consolidated balance sheet as of June 30, 2018 and our audited consolidated balance sheets as of December 31, 2017 and 2016, and our unaudited condensed consolidated statements of operations for the six months ended June 30, 2018 and 2017 and our audited consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 included elsewhere in this prospectus. Studio City International, MSC Cotai and each of their respective consolidated subsidiaries are under the common control of Melco Resorts, who collectively hold more than 50% of the voting and economic interest of these entities.

The following unaudited pro forma condensed consolidated financial information gives pro forma effect to the Organizational Transactions and related transactions as described in “Corporate History and Organizational Structure,” as if all such transactions had occurred on January 1, 2015, and are based on available information and certain assumptions we believe are reasonable, but are subject to change. All pro forma adjustments and their underlying assumptions are described more fully in the notes to our unaudited pro forma condensed financial statements.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the sections of this prospectus captioned “Corporate History and Organizational Structure,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.

The unaudited pro forma condensed consolidated financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed consolidated financial information is included for informational purposes only and does not purport to reflect the financial position or results of operations that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma condensed consolidated financial information does not purport to be indicative of our financial position or results of operations had the Organizational Transactions and related transactions as described in “Corporate History and Organizational Structure” occurred on the date assumed. The unaudited pro forma condensed consolidated financial information also does not project our financial position or results of operations for any future period or date.

The pro forma adjustments principally give effect to:

 

   

the completion of the following transactions, referred to collectively as the “Organizational Transactions”:

 

  i)

the amendment and restatement of the memorandum of association and articles of association of Studio City International to authorize two classes of ordinary shares, the SC Class A Shares and the SC Class B Shares. Each SC Class A Share and each SC Class B Share will entitle its holder to one vote on all matters to be voted on by shareholders generally and holders of SC Class A Shares and SC Class B Shares will vote together as a single class on all matters presented to the shareholders for vote or approval, except as otherwise required by applicable law or Studio City International’s memorandum of association and articles of association. The SC Class A Shares and the SC Class B Shares will have the same rights, except that holders of the SC Class B Shares do not have any right to receive dividends or distributions upon the liquidation or winding up of Studio City International;

 

  ii)

MCE Cotai’s 60% equity interest in Studio City International will be reclassified into 108,767,640 SC Class A Shares;

 

  iii)

New Cotai’s 40% equity interest in Studio City International will be exchanged for 72,511,760 SC Class B Shares. New Cotai’s SC Class B Shares have only voting and no economic rights and,

 

79


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION—(Continued)

 

  through its SC Class B Shares, New Cotai will have a 40% voting and non-economic interest in Studio City International, which will control MSC Cotai;

 

  iv)

In addition, New Cotai will have a non-voting, non-shareholding economic participation interest, or Participation Interest, in MSC Cotai. Immediately prior to this offering, the Participation Interest will entitle New Cotai to receive from MSC Cotai an amount equal to 66- 23% of the amount of any distribution, dividend or other consideration paid by MSC Cotai to Studio City International, subject to adjustments, exceptions and conditions as set out in a participation agreement to be entered into by Studio City International, MSC Cotai and New Cotai, or the Participation Agreement. The Participation Agreement will also provide that New Cotai will be entitled to exchange all or a portion of its Participation Interest for a number of SC Class A Shares subject to adjustments, exceptions and conditions as set out in the Participation Agreement. When New Cotai exchanges all or a portion of the Participation Interest for SC Class A Shares pursuant to the terms of exchange set forth in the Participation Agreement, a proportionate number of SC Class B Shares will be deemed surrendered and automatically cancelled for no consideration as set out in the Participation Agreement.

 

   

the consolidation of MSC Cotai into Studio City International and its consolidated subsidiaries financial statements in accordance with Accounting Standards Codification (“ASC”) 810 Consolidation, pursuant to which Studio City International will record a participation interest in relation to the Participation Interest in MSC Cotai as described above. The Participation Interest does not provide to New Cotai any preferential rights in MSC Cotai with respect to dividend and distribution rights, including distributions in the event of liquidation or dissolution. The option held by New Cotai to exchange the Participation Interest for SC Class A Shares and the surrender of SC Class B Shares is a feature embedded in an instrument issued by MSC Cotai that is a privately held enterprise. Therefore, the exchange right does not meet the definition of a derivative in accordance with ASC 815 Derivatives and Hedging to require bifurcation for separate accounting.

We have not made an adjustment for additional accounting, legal and information technology costs that we expect to incur as a result of being a public company. As a public company, we expect our general and administrative expenses to increase in an amount that we cannot determine at this time due to greater expenses related to corporate governance, SEC reporting and other compliance matters.

The unaudited pro forma condensed consolidated financial information presented assumes no exercise by New Cotai of the option to exchange all or a portion of the Participation Interest for SC Class A Shares pursuant to the Participation Agreement, and to surrender the proportionate number of SC Class B Shares.

 

80


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2018

(In thousands of U.S. dollars, except share and per share data)

 

    Before
Pro Forma
Adjustments
          Organizational
Transactions
Adjustments
          After
Pro Forma
Adjustments
 

ASSETS

         

CURRENT ASSETS

         

Cash and cash equivalents

  $ 294,878       $ —         $ 294,878  

Bank deposits with original maturities over three months

    24,987         —           24,987  

Restricted cash

    34,402         —           34,402  

Accounts receivable, net

    1,935         —           1,935  

Amounts due from affiliated companies

    29,143         —           29,143  

Inventories

    9,909         —           9,909  

Prepaid expenses and other current assets

    22,510         —           22,510  
 

 

 

     

 

 

     

 

 

 

Total current assets

    417,764         —           417,764  
 

 

 

     

 

 

     

 

 

 

PROPERTY AND EQUIPMENT, NET

    2,226,411         —           2,226,411  

LONG-TERM PREPAYMENTS, DEPOSITS AND OTHER ASSETS

    54,825         —           54,825  

RESTRICTED CASH

    130         —           130  

LAND USE RIGHT, NET

    124,011         —           124,011  
 

 

 

     

 

 

     

 

 

 

TOTAL ASSETS

  $ 2,823,141       $ —         $ 2,823,141  
 

 

 

     

 

 

     

 

 

 

LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

         

CURRENT LIABILITIES

         

Accounts payable

  $ 5,251       $ —         $ 5,251  

Accrued expenses and other current liabilities

    65,965         —           65,965  

Amounts due to affiliated companies

    21,752         —           21,752  

Income tax payable

    33         —           33  
 

 

 

     

 

 

     

 

 

 

Total current liabilities

    93,001         —           93,001  
 

 

 

     

 

 

     

 

 

 

LONG-TERM DEBT, NET

    2,003,181         —           2,003,181  

OTHER LONG-TERM LIABILITIES

    4,216         —           4,216  

DEFERRED TAX LIABILITIES

    875         —           875  

COMMITMENTS AND CONTINGENCIES

         

SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

         

Class A ordinary shares, par value $0.0001; 1,927,488,240 shares authorized; 108,767,640 shares issued and outstanding on a pro forma basis

    —           11       2(a),2(b)       11  

Class B ordinary shares, par value $0.0001; 72,511,760 shares authorized; 72,511,760 shares issued and outstanding on a pro forma basis

    —           7       2(a),2(b)       7  

Existing shareholders’ equity

    721,380       2(d)       (721,380     2(a),2(b)       —    

Additional paid-in capital

    —           432,817       2(b)       432,817  

Accumulated other comprehensive income

    488         (195     2(b)       293  
 

 

 

     

 

 

     

 

 

 

Total shareholders’ equity

    721,868         (288,740       433,128  
 

 

 

     

 

 

     

 

 

 

PARTICIPATION INTEREST

    —           288,740       2(a),2(b)       288,740  
 

 

 

     

 

 

     

 

 

 

Total shareholders’ equity and participation interest

    721,868         —           721,868  
 

 

 

     

 

 

     

 

 

 

TOTAL LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

  $ 2,823,141       $ —         $ 2,823,141  
 

 

 

     

 

 

     

 

 

 

 

81


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2017

(In thousands of U.S. dollars, except share and per share data)

 

     Before
Pro Forma
Adjustments
     Organizational
Transactions
Adjustments
           After
Pro Forma
Adjustments
 

ASSETS

          

CURRENT ASSETS

          

Cash and cash equivalents

   $ 348,399      $ —          $ 348,399  

Bank deposits with original maturities over three months

     9,884        —            9,884  

Restricted cash

     34,400        —            34,400  

Accounts receivable, net

     2,345        —            2,345  

Amounts due from affiliated companies

     37,826        —            37,826  

Inventories

     10,143        —            10,143  

Prepaid expenses and other current assets

     17,930        —            17,930  
  

 

 

    

 

 

      

 

 

 

Total current assets

     460,927        —            460,927  
  

 

 

    

 

 

      

 

 

 

PROPERTY AND EQUIPMENT, NET

     2,280,116        —            2,280,116  

LONG-TERM PREPAYMENTS, DEPOSITS AND OTHER ASSETS

     60,722        —            60,722  

RESTRICTED CASH

     130        —            130  

LAND USE RIGHT, NET

     125,672        —            125,672  
  

 

 

    

 

 

      

 

 

 

TOTAL ASSETS

   $ 2,927,567      $ —          $ 2,927,567  
  

 

 

    

 

 

      

 

 

 

LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

          

CURRENT LIABILITIES

          

Accounts payable

   $ 2,722      $ —          $ 2,722  

Accrued expenses and other current liabilities

     155,840        —            155,840  

Amounts due to affiliated companies

     19,508        —            19,508  
  

 

 

    

 

 

      

 

 

 

Total current liabilities

     178,070        —            178,070  
  

 

 

    

 

 

      

 

 

 

LONG-TERM DEBT, NET

     1,999,354        —            1,999,354  

OTHER LONG-TERM LIABILITIES

     9,512        —            9,512  

DEFERRED TAX LIABILITIES

     588        —            588  

COMMITMENTS AND CONTINGENCIES

          

SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

          

Class A ordinary shares, par value $0.0001; 1,927,488,240 shares authorized; 108,767,640 shares issued and outstanding on a pro forma basis

     —          11       2(a),2(b)        11  

Class B ordinary shares, par value $0.0001; 72,511,760 shares authorized; 72,511,760 shares issued and outstanding on a pro forma basis

     —          7       2(a),2(b)        7  

Existing shareholders’ equity

     739,555        (739,555     2(a),2(b)        —    

Additional paid-in capital

     —          443,722       2(b)        443,722  

Accumulated other comprehensive income

     488        (195     2(b)        293  
  

 

 

    

 

 

      

 

 

 

Total shareholders’ equity

     740,043        (296,010        444,033  
  

 

 

    

 

 

      

 

 

 

PARTICIPATION INTEREST

     —          296,010       2(a), 2(b)        296,010  
  

 

 

    

 

 

      

 

 

 

Total shareholders’ equity and participation interest

     740,043        —            740,043  
  

 

 

    

 

 

      

 

 

 

TOTAL LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

   $ 2,927,567      $ —          $ 2,927,567  
  

 

 

    

 

 

      

 

 

 

 

82


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2016

(In thousands of U.S. dollars, except share and per share data)

 

     Before
Pro Forma
Adjustments
     Organizational
Transactions
Adjustments
           After
Pro Forma
Adjustments
 

ASSETS

          

CURRENT ASSETS

          

Cash and cash equivalents

   $ 336,783      $ —          $ 336,783  

Restricted cash

     34,333        —            34,333  

Accounts receivable, net

     2,820        —            2,820  

Amounts due from affiliated companies

     1,578        —            1,578  

Inventories

     9,484        —            9,484  

Prepaid expenses and other current assets

     12,220        —            12,220  
  

 

 

    

 

 

      

 

 

 

Total current assets

     397,218        —            397,218  
  

 

 

    

 

 

      

 

 

 

PROPERTY AND EQUIPMENT, NET

     2,419,410        —            2,419,410  

LONG-TERM PREPAYMENTS, DEPOSITS AND OTHER ASSETS

     76,246        —            76,246  

RESTRICTED CASH

     130        —            130  

LAND USE RIGHT, NET

     128,995        —            128,995  
  

 

 

    

 

 

      

 

 

 

TOTAL ASSETS

   $ 3,021,999      $ —          $ 3,021,999  
  

 

 

    

 

 

      

 

 

 

LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

          

CURRENT LIABILITIES

          

Accounts payable

   $ 3,482      $ —          $ 3,482  

Accrued expenses and other current liabilities

     156,495        —            156,495  

Amounts due to affiliated companies

     33,462        —            33,462  
  

 

 

    

 

 

      

 

 

 

Total current liabilities

     193,439        —            193,439  
  

 

 

    

 

 

      

 

 

 

LONG-TERM DEBT, NET

     1,992,123        —            1,992,123  

OTHER LONG-TERM LIABILITIES

     19,130        —            19,130  

DEFERRED TAX LIABILITIES

     827        —            827  

COMMITMENTS AND CONTINGENCIES

          

SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

          

Class A ordinary shares, par value $0.0001; 1,927,488,240 shares authorized; 108,767,640 shares issued and outstanding on a pro forma basis

     —          11       2(a), 2(b)        11  

Class B ordinary shares, par value $0.0001; 72,511,760 shares authorized; 72,511,760 shares issued and outstanding on a pro forma basis

     —          7       2(a), 2(b)        7  

Existing shareholders’ equity

     815,992        (815,992     2(a), 2(b)        —    

Additional paid-in capital

     —          489,584       2(b)        489,584  

Accumulated other comprehensive income

     488        (195     2(b)        293  
  

 

 

    

 

 

      

 

 

 

Total shareholders’ equity

     816,480        (326,585        489,895  
  

 

 

    

 

 

      

 

 

 

PARTICIPATION INTEREST

     —          326,585       2(a), 2(b)        326,585  
  

 

 

    

 

 

      

 

 

 

Total shareholders’ equity and participation interest

     816,480        —            816,480  
  

 

 

    

 

 

      

 

 

 

TOTAL LIABILITIES, SHAREHOLDERS’ EQUITY AND PARTICIPATION INTEREST

   $ 3,021,999      $ —          $ 3,021,999  
  

 

 

    

 

 

      

 

 

 

 

83


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(In thousands of U.S. dollars, except share and per share data)

 

     Before
Pro Forma
Adjustments
    Organizational
Transactions
Adjustments
           After
Pro Forma
Adjustments
 

OPERATING REVENUES

         

Provision of gaming related services

   $ 168,595     $ —          $ 168,595  

Rooms

     43,583       —            43,583  

Food and beverage

     31,459       —            31,459  

Entertainment

     6,273       —            6,273  

Services fee

     19,606       —            19,606  

Mall

     10,698       —            10,698  

Retail and other

     1,956       —            1,956  
  

 

 

   

 

 

      

 

 

 

Total revenues

     282,170       —            282,170  
  

 

 

   

 

 

      

 

 

 

OPERATING COSTS AND EXPENSES

         

Provision of gaming related services

     (10,756     —            (10,756

Rooms

     (10,954     —            (10,954

Food and beverage

     (27,370     —            (27,370

Entertainment

     (6,886     —            (6,886

Mall

     (5,382     —            (5,382

Retail and other

     (1,274     —            (1,274

General and administrative

     (65,855     —            (65,855

Pre-opening costs

     (53     —            (53

Amortization of land use right

     (1,661     —            (1,661

Depreciation and amortization

     (83,783     —            (83,783

Property charges and other

     (3,527     —            (3,527
  

 

 

   

 

 

      

 

 

 

Total operating costs and expenses

     (217,501     —            (217,501
  

 

 

   

 

 

      

 

 

 

OPERATING INCOME

     64,669       —            64,669  
  

 

 

   

 

 

      

 

 

 

NON-OPERATING INCOME (EXPENSES)

         

Interest income

     1,439       —            1,439  

Interest expenses

     (76,159     —            (76,159

Amortization of deferred financing costs

     (4,025     —            (4,025

Loan commitment fees

     (208     —            (208

Foreign exchange losses, net

     (162     —            (162

Other expenses, net

     (22     —            (22
  

 

 

   

 

 

      

 

 

 

Total non-operating expenses, net

     (79,137     —            (79,137
  

 

 

   

 

 

      

 

 

 

LOSS BEFORE INCOME TAX

     (14,468     —            (14,468

INCOME TAX EXPENSE

     (375     —            (375
  

 

 

   

 

 

      

 

 

 

NET LOSS

     (14,843     —            (14,843

NET LOSS ATTRIBUTABLE TO PARTICIPATION INTEREST

     —         5,937       3(a)        5,937  
  

 

 

   

 

 

      

 

 

 

NET LOSS ATTRIBUTABLE TO STUDIO CITY INTERNATIONAL

   $ (14,843   $ 5,937        $ (8,906
  

 

 

   

 

 

      

 

 

 

LOSS PER CLASS A ORDINARY SHARE:

         

Basic and diluted

         3(b)      $ (0.082
         

 

 

 

WEIGHTED AVERAGE CLASS A ORDINARY SHARES OUTSTANDING USED IN LOSS PER SHARE CALCULATION:

         

Basic and diluted

         3(b)        108,767,640  
         

 

 

 

 

84


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(In thousands of U.S. dollars, except share and per share data)

 

     Before
Pro Forma
Adjustments
     Organizational
Transactions
Adjustments
           After
Pro Forma
Adjustments
 

OPERATING REVENUES

          

Provision of gaming related services

   $ 133,352      $ —          $ 133,352  

Rooms

     43,107        —            43,107  

Food and beverage

     29,195        —            29,195  

Entertainment

     9,507        —            9,507  

Services fee

     19,883        —            19,883  

Mall

     15,518        —            15,518  

Retail and other

     3,294        —            3,294  
  

 

 

    

 

 

      

 

 

 

Total revenues

     253,856        —            253,856  
  

 

 

    

 

 

      

 

 

 

OPERATING COSTS AND EXPENSES

          

Provision of gaming related services

     (11,764)        —            (11,764)  

Rooms

     (10,707)        —            (10,707)  

Food and beverage

     (26,958)        —            (26,958)  

Entertainment

     (8,837)        —            (8,837)  

Mall

     (4,451)        —            (4,451)  

Retail and other

     (1,900)        —            (1,900)  

General and administrative

     (65,179)        —            (65,179)  

Pre-opening costs

     40        —            40  

Amortization of land use right

     (1,661)        —            (1,661)  

Depreciation and amortization

     (86,582)        —            (86,582)  

Property charges and other

     (4,267)             (4,267)  
  

 

 

    

 

 

      

 

 

 

Total operating costs and expenses

     (222,266)        —            (222,266)  
  

 

 

    

 

 

      

 

 

 

OPERATING INCOME

     31,590        —            31,590  
  

 

 

    

 

 

      

 

 

 

NON-OPERATING INCOME (EXPENSES)

          

Interest income

     800        —            800  

Interest expenses

     (76,159)        —            (76,159)  

Amortization of deferred financing costs

     (3,735)        —            (3,735)  

Loan commitment fees

     (208)        —            (208)  

Foreign exchange gains, net

     394        —            394  

Other income, net

     287        —            287  
  

 

 

    

 

 

      

 

 

 

Total non-operating expenses, net

     (78,621)        —            (78,621)  
  

 

 

    

 

 

      

 

 

 

LOSS BEFORE INCOME TAX

     (47,031)        —            (47,031)  

INCOME TAX CREDIT

     15        —            15  
  

 

 

    

 

 

      

 

 

 

NET LOSS

     (47,016)        —            (47,016)  

NET LOSS ATTRIBUTABLE TO PARTICIPATION INTEREST

     —          18,806       3(a)        18,806  
  

 

 

    

 

 

      

 

 

 

NET LOSS ATTRIBUTABLE TO STUDIO CITY INTERNATIONAL

     $(47,016)      $ 18,806          $(28,210)  
  

 

 

    

 

 

      

 

 

 

LOSS PER CLASS A ORDINARY SHARE:

          

Basic and diluted

          3(b)        $(0.259)  
          

 

 

 

WEIGHTED AVERAGE CLASS A ORDINARY SHARES OUTSTANDING USED IN LOSS PER SHARE CALCULATION:

          

Basic and diluted

          3(b)        108,767,640  
          

 

 

 

 

85


Table of Contents

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2017

(In thousands of U.S. dollars, except share and per share data)

 

     Before
Pro Forma
Adjustments
    Organizational
Transactions
Adjustments
           After
Pro Forma
Adjustments
 

OPERATING REVENUES

         

Provision of gaming related services

   $ 295,638     $ —          $ 295,638  

Rooms

     88,699       —            88,699  

Food and beverage

     60,705       —            60,705  

Entertainment

     18,534       —            18,534  

Services fee

     39,971       —            39,971  

Mall

     29,498       —            29,498  

Retail and other

     6,769       —            6,769  
  

 

 

   

 

 

      

 

 

 

Total revenues

     539,814       —            539,814  
  

 

 

   

 

 

      

 

 

 

OPERATING COSTS AND EXPENSES

         

Provision of gaming related services

     (24,019     —            (24,019

Rooms

     (21,750     —            (21,750

Food and beverage

     (54,266     —            (54,266

Entertainment

     (16,364     —            (16,364

Mall

     (9,098     —            (9,098

Retail and other

     (4,750     —            (4,750

General and administrative

     (130,465     —            (130,465

Pre-opening costs

     (116     —            (116

Amortization of land use right

     (3,323     —            (3,323

Depreciation and amortization

     (173,003     —            (173,003

Property charges and other

     (22,210     —            (22,210
  

 

 

   

 

 

      

 

 

 

Total operating costs and expenses

     (459,364     —            (459,364
  

 

 

   

 

 

      

 

 

 

OPERATING INCOME

     80,450       —            80,450  
  

 

 

   

 

 

      

 

 

 

NON-OPERATING INCOME (EXPENSES)

         

Interest income

     2,171       —            2,171  

Interest expenses

     (152,318     —            (152,318

Amortization of deferred financing costs

     (7,600     —            (7,600

Loan commitment fees

     (419     —            (419

Foreign exchange gains, net

     466       —            466  

Other income, net

     574       —            574  
  

 

 

   

 

 

      

 

 

 

Total non-operating expenses, net

     (157,126     —            (157,126
  

 

 

   

 

 

      

 

 

 

LOSS BEFORE INCOME TAX

     (76,676     —            (76,676

INCOME TAX CREDIT

     239       —            239  
  

 

 

   

 

 

      

 

 

 

NET LOSS

     (76,437     —            (76,437

NET LOSS ATTRIBUTABLE TO PARTICIPATION INTEREST

     —         30,575       3(a)        30,575  
  

 

 

   

 

 

      

 

 

 

NET LOSS ATTRIBUTABLE TO STUDIO CITY INTERNATIONAL

   $ (76,437   $ 30,575        $ (45,862
  

 

 

   

 

 

      

 

 

 

LOSS PER CLASS A ORDINARY SHARE:

         

Basic and diluted

         3(b)      $ (0.422
         

 

 

 

WEIGHTED AVERAGE CLASS A ORDINARY SHARES OUTSTANDING USED IN LOSS PER SHARE CALCULATION:

         

Basic and diluted

         3(b)