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Cash in Hand

Melco PBL raises over US$1 billion on Nasdaq to fund its ambitious Macau gaming projects

Saturday, 20 January 2007 16:45
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On December 19, Melco PBL Entertainment (Macau) Ltd raised US$1.14 billion from the sale of 60.3 million American depositary shares at US$19 each on the Nasdaq Stock Market. Hong Kong stock market regulators had originally denied permission to list the venture on Nasdaq, but undeterred, Melco PBL re-submitted their application, and received the go-ahead the second time around.

SJM IPO Stymied

Lawrence Ho’s IPO ambitions may have been fulfilled, but his father, Stanley Ho, remains stymied in his attempt to raise HK$15 billion (US$) by selling shares of his company, Sociedade de Turismo e Diversoes (STDM), parent company of gaming concession holder SJM, which controls 17 of Macau’s 24 casinos. Behind the delay is a lawsuit filed by Stanley Ho’s sister, Winnie, who claims STDM owes her about HK$3 billion (US$386 million) in dividends for the past five years for her 8% stake in the company. Winnie Ho has filed over 30 lawsuits against her brother over alleged debt, defamation, and the shareholding structure of the companies.


Melco PBL is a joint venture between Hong Kong-listed Melco International Development, headed by Lawrence Ho, son of Macau casino tycoon Stanley Ho, and James Packer’s Australia-listed Publishing & Broadcasting Ltd (PBL). James Packer, 39, assumed control of PBL and became Australia’s richest man following the death of his father Kerry in 2005. Melco and PBL formed the 50-50 joint venture in 2005 in order to pursue gaming, entertainment and hospitality business opportunities in China and the rest of Asia.

Melco PBL plans to invest US$3.31 billion over five years building three casino resorts and an apartment complex in Macau. US investors demonstrated strong appetite for the Macau-play on the back of the strong showing of Macau properties from US-listed Las Vegas Sands Corp and Wynn Resorts, which have benefited from soaring visitor arrivals and gaming revenues in Macau – the only part of China where casinos are legal.

Melco PBL said in a December 1 filing that it will use about US$514 million of its Nasdaq IPO proceeds to repay, with interest, a US$500 million loan used to buy a Macau gaming subconcession for US$900 million from Wynn Resorts in March. It was the sixth and final casino license up for grabs in Macau. Previously, Melco PBL relied on lease agreements with Stanley Ho’s Sociedade de Jogos de Macau (SJM) to operate its gaming projects and businesses. Buying the subconcession allows the venture to own and operate hotel casino resorts in Macau, without having to give a share of the revenues to SJM.

Melco PBL formalized its independence from 85-year-old Stanley Ho in November when the elder Mr Ho sold his 4.3% stake in Melco and ceded chairmanship of the company to Lawrence Ho.

Crown Contribution

Melco PBL currently owns six Mocha Slot outlets with about 1,000 slot machines around Macau, while Melco also owns an investment banking firm, the Jumbo Kingdom floating restaurant in Hong Kong and a gaming technology arm called Elixir, which in 2006 announced a 20-year alliance with Shuffle Master Inc to jointly develop localized gaming technologies in Asia, as well as distribute Shuffle Master’s existing products in the region. None of these businesses yield earnings comparable to Macau’s casinos. The venture reported a loss of US$20.5 million on sales of US$18.2 million in the nine months through September 30.

Melco PBL will formally enter Macau’s red-hot table-gaming market on April 28, when it opens its six-star Crown Macau Hotel Casino on Taipa island. Melco PBL Chief Financial Officer Simon Dewhurst confidently proclaimed: “The revenues start rolling as soon as you open your doors.”

The 220-gaming table Crown Macau was originally slated to open in September 2006. Investors initially looked beyond the delay in pushing Melco’s share price steadily upwards, but it appears the delay is now giving investors time to ponder whether Melco PBL can secure a niche in the market, and compete with glitzy new casino offerings from Las Vegas Sands Corp, Wynn Resorts and MGM.

There are concerns that demand will be unable to match the huge supply of hotel rooms and gaming tables in the pipeline. There are also worries that tiny Macau’s straining infrastructure will be unable to cope with the load – even though casino operators claim they are confident the city will have the facilities and workforce in place to host the projected 35 million visitor arrivals in 2010.

More than Gaming

Melco PBL will offer more than just gaming, and plans to derive substantial revenue from it high quality entertainment, dining and retail offerings. Through such offerings, the company hopes to help extend the average stay of visitors to Macau beyond the current 1.1 days “When you have better properties opening up, it will drive the market in general,” said Lawrence Ho.

With Melco’s major gaming operations yet to commence, its share price is subject to the vagaries of sentiment towards Macau, and moved by news about the city’s casino revenues and visitor arrivals. Further project delays, especially at its flagship City of Dreams project, are regarded as one of the major risks to the share price.

Melco PBL has started construction on the 2,000-room, 450-table City of Dreams, scheduled for completion in phases starting in late 2008 at a total cost of US$2.1 billion. Notably, Melco PBL has yet to finalize a land lease agreement for the City of Dreams complex with the Macau government, and given soaring prices of commercial land, the venture does not appear to have a very strong bargaining position.

Melco PBL Entertainment chose the Leighton-China State-John Holland joint venture as the main contractor for its flagship resort and entertainment project, City of Dreams, currently being built on the Cotai Strip in Macau.

City of Dreams is expected to take around two years to complete and the first phase including the casino is scheduled to open in the second half of 2008. In addition to four hotels, an underwater-themed casino, eateries, performance hall and serviced apartments, City of Dreams will incorporate extensive water screening and landscaping work including public access to the “Bubble” – a unique architectural showpiece and the main “wow factor” of the project.

Melco PBL Entertainment signed an agreement with Hard Rock International for a Hard Rock Hotel and Casino Macau in the City of Dreams. City of Dreams will also feature two deluxe hotels managed by Hyatt International, carrying the brands of Grand Hyatt and Hyatt Regency, respectively.

Meanwhile, Dragone Entertainment has been entrusted with delivering a spectacular world-class permanent show at the City of Dreams in a stand-alone performance hall with a seating capacity of around 2,000 designed by the renowned Pei Partnerships in New York.

Third Site

Melco PBL is also buying a third site on the Macau peninsula near the ferry terminal, on which it plans to build a casino and apartment complex costing as much as US$700 million. The development is expected to be ready by mid-2009.

Melco PBL also expects to operate the casino at Macau Studio City, a retail and entertainment complex scheduled to open in 2009 on Macau’s burgeoning Cotai Strip.

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