GGRAsia – Melco, Studio City on SEC list of companies facing delisting risk

Melco and Studio City on SEC list of companies facing delisting risk

The U.S. Securities and Exchange Commission (SEC) on Tuesday (April 12th) placed casino operators Melco Resorts and Entertainment Ltd and Studio City International Holdings Ltd on its provisional list of Chinese companies at risk of delisting from U.S. stock exchanges.

Melco Resorts is listed on the Nasdaq and Studio City International Holdings on the New York Stock Exchange. Both companies have until May 3 to challenge the SEC’s identification under the Holding Foreign Companies Accountable Act (HFCAA), according to the SEC notice.

Melco Resorts – run by Lawrence Ho Yau Lung – operates casinos in Macao, the Philippines and the Republic of Cyprus. Melco Resorts is the majority owner of Studio City International Holdings, which operates the Studio City casino resort in Cotai, Macau.

The US Holding Foreign Companies Accountable Act requires audits to be performed by companies subject to inspection by the US Public Company Accounting Oversight Board (PCAOB). The PCAOB may determine that it is unable to fully inspect or investigate a registered public accounting firm “due to a position taken by an authority in a foreign jurisdiction,” according to the HFCAA. .

In a statement sent to GGRAsia on Wednesday, Melco Resorts said it was aware that the company and Studio City International Holdings had been identified by the US SEC under the HFCAA.

“Melco and Studio City have previously disclosed that their auditors, the independent registered public accounting firm that issued the audit report included in their annual reports filed with the SEC, are located in a jurisdiction currently listed as not not be fully inspected by the PCAOB, and therefore identification was awaited,” the statement read.

“Melco and Studio City will continue to closely monitor developments and explore options in relation to HFCAA,” he added.

Melco Resorts and Studio City International Holdings confirmed in their respective 2021 annual reports released in March that they had been advised that their respective auditor – Ernst & Young Hong Kong – was “subject to determinations that the PCAOB is unable to to inspect or investigate fully. ”

“Our ads [American depositary shares] may be delisted and our ADSs and shares prohibited from trading on the over-the-counter market under the Foreign Companies Liability Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in Hong Kong,” Melco Resorts and Studio City International reported in their respective latest annual reports.

“Under current law, delisting and prohibition from trading on a national securities exchange and the over-the-counter market in the United States could occur in 2024,” the two companies said.

“Whether the PCAOB will be able to conduct inspections of our auditor prior to the issuance of our financial statements…for the year ended December 31, 2023, which is due April 30, 2024, or not at all, is subject to substantial uncertainty and depends on a number of factors beyond our control,” the two companies said in their respective reports.

Brokerage Sanford C. Bernstein Ltd said in a March note that there was “no near-term risk of delisting” of Melco Resorts shares in the U.S. “However, the issue will need to be resolved for the Melcos Resorts and other U.S. depositary stock issuers must be in compliance by 2024,” analyst Vitaly Umansky wrote.

The institution said: “Chinese and US authorities have been discussing how to possibly resolve the PCAOB audit issue for some time.” But, he added, if “no deal is reached, the solution would be for Melco to list on the Hong Kong Stock Exchange or potentially merge” with its parent company, Hong Kong-listed Melco International Development Ltd.

(Updated 6:45 p.m., April 13)

Martin E. Berry