Inside Asian Gaming

INSIDE ASIAN GAMING | Oct 2007 10 gan Stanley, and said it hoped to borrow a further US$500 million direct from the two principals, leaving another US$300 million to come from other sources. This may come from private equity, although the details of PE deals are not always made public. Jay Schall of Wynn, says: “I’m very curi- ous to see how this arrangement will work, because banks are all about locking up cash until a project is proven, and private equity firms are all about spitting out returns.” A Venetian wannabe? Depending on how you look at it, Ma- cao Studio City is either a hodgepodge of mini-projects packaged together, or a bold adventure in providing compelling content. It’s certainly heavy on non-gaming real es- tate and stresses its IR credentials. Facilities will include a one million square foot mall to be managed by Taubman Asia; hotels (a total of 1,950 rooms to be managed by up market brands including the Ritz-Carlton) and—perhaps crucially—a considerable dollop of entertainment hardware and software. This includes a television and film production facility; a 2,300-seat theatre; a meetings centre with capacity for 4,700 people; a Playboy-branded casino operat- ing on an MPEL licence, and regular concert performances by Chinese stars. The latter content will be provided by eSun Holdings, one of Asia’s leading media and entertain- ment companies and a major shareholder in one of the consortium partners. There are also echoes of LVS’s highly pro- fessional and commoditised approach to busi- ness inMSC’s decision to trademark yet anoth- er Cotai place name. Its 32.3-acre site on the edge of the Cotai Strip™will be named‘Where Cotai Begins™’. The Venetian Macao and MSC also share something else in common. Former LVS executive David Friedman, who was in- volved in bringing the LVS brand toMacau,is a co-chairman and co-CEO of Macao Studio City. Regardless of whether MSC has a touch of Venetian wannabe about it, it may not be helpful for operators to get too obsessed about rivals’ finance strategies. One size certainly didn’t fit all when it came to proj- ect financing during the first wave of resort building after the ending of Stanley Ho’s mo- nopoly in 2002. Other funding routes Galaxy Entertainment Group (GEG) took a fairly conservative route by issuing US$600 million worth of bonds for its first round of project finance. The issue was actually four times oversubscribed, but this wasn’t en- tirely surprising, as Galaxy was offering a yield of at least 9.875% on the seven-year fixed rate tranche, and a yield of interbank rate plus 5% on the five-year floating rate tranche. This was expensive money when considering that bonds issued earlier by LVS and Wynn were trading at the time at an av- erage yield of 7%. GEG’s Chief Financial Offi- cer Nigel Morrison recently said he had con- sidered trying to restructure this debt when he joined the company earlier this year, but that in the light of the global credit squeeze it now looked like a good deal. Wynn Resorts paid for most of Wynn Macau with the US$900 million it made from the sale of a sub concession to MPEL though it still needed a US$300 million loan to com- plete the work. MGM Grand Macau secured a US$700 million syndicated loan with the lead banks drawn from Asia, North America and Europe, while MPEL started with a share offering on Nasdaq in New York, topped up by loans from American and Asian banks. That first flurry of development has left the operators with very different asset mix- es, with different strengths and weaknesses. The challenge will be to work creatively to leverage what they’ve got, rather than worry what assets they might have had if they’d approached things differently. Alternatives to debt funding are a wel- come addition to the project capital mix for Macau and for Asian gaming in general, but given the huge cost of such massive real es- tate projects, debt will likely remain a large part of the equation. In order to monetise a resort, you first need to guarantee its con- struction costs. The key to future project finance success is likely to involve gaining enough traction from your existing assets to service debt quickly and efficiently in order to free up precious cash flows and create an LVS-style virtuous circle of self- seeding projects. Cover Story The mall at Macao Studio City