Melco Resorts & Entertainment Ltd and its majority-owned subsidiary Studio City International Holdings Ltd are among 12 ADR (American depositary receipts) companies added to a provisional list of foreign firms that may be subject to delisting by the US Securities and Exchange Commission (SEC).
In a statement sent to Inside Asian Gaming overnight, Melco said it had been identified by the SEC after filing its annual report for the fiscal year ended 31 December 2021.
The issue relates to new regulations, adopted by the US Securities and Exchange Commission (SEC) in January, that relate to some foreign companies.
Among the new stipulations contained within the Holding Foreign Companies Accountable Act (HFCAA), audits of listed companies must be conducted by firms subject to inspection by the US Public Company Accounting Oversight Board (PCAOB). Melco’s auditor, Ernst & Young Hong Kong, has been deemed by the PCAOB to be unable to inspect in the Hong Kong jurisdiction.
Affected companies will be given a three-year countdown starting this year to find a solution, and if none is forthcoming then any companies not in compliance by 2024 will likely need to delist.
Melco said overnight that it was “aware that the company has been identified by the SEC under HFCAA on 12 April 2022,” but was not surprised to be added to the SEC’s list.
“Melco has previously disclosed that its auditor, the independent registered public accounting firm that issued the audit report included in its annual report filed with the SEC, is in a jurisdiction currently listed as not being able to be fully inspected by the PCAOB, and thus the identification was expected,” it said. “Melco will continue to closely monitor developments and explore options in relation to the HFCAA.”
As previously reported by Inside Asian Gaming, brokerage Bernstein has outlined a number of options available to Melco.
“If no agreement occurs, the solution would be for Melco to do a listing on the Hong Kong Stock Exchange (HKSE) or to potentially merge with 200.HK (parent company Melco International Development Ltd),” Bernstein said.
Regarding the possibility of Melco merging with its HKSE-listed parent, the brokerage added, “This path has complexity around arm’s length valuation in the context of a merger and residual ownership by Lawrence Ho. However, there is a scenario where such a transaction makes perfect sense and should definitely be value creating for shareholders.”