Melco Crown, Belle Agree To Partner on $1 Billion Manila Casino
Friday, 06 July 2012
By Kate O'Keeffe and Cris Larano, Dow Jones Newswires
HONG KONG--Macau casino operator Melco Crown Entertainment Ltd. (MPEL) is set to enter the burgeoning Philippines market by teaming up with local property developer Belle Corp. (BEL.PH), according to separate statements from the companies Thursday.
The parties said they signed a legally binding "memorandum of agreement" to partner on a casino resort that will cost at least $1 billion in an area the Philippines hopes will become Manila's version of the Las Vegas Strip. The companies didn't elaborate on the details of their partnership, which they said they would hammer out over the next two months.
The deal, which would bring to Manila a casino company that cut its teeth in the world's biggest gambling hub, could dramatically raise the profile of the city's developing casino industry. It would also transform Melco Crown, which currently only operates in Macau, into a regional player at a time when Asia's gambling industry is growing rapidly.
The Philippine government has issued licenses to four companies, including Belle, to build casinos in the Manila Bay area. Belle, controlled by the Philippines' richest man, Henry Sy, completed most of the construction of their resort earlier this year but held off completing it as deal negotiations with Melco Crown dragged on over the past few months, a person familiar with the matter told Dow Jones Newswires last week.
Melco Crown said it doesn't expect its total investment in the project to exceed $580 million, which would come from a combination of cash, cash flow and debt financing. A $320 million loan facility "may be made available" to Melco Crown to finance the project, the company added.
The merits of Melco Crown entering the Philippines market have been hotly debated recently. "I would much rather see the money put to work in Macau," said Union Gaming analyst Grant Govertsen.
Melco Crown, backed by Lawrence Ho and James Packer--the sons of Macau gambling tycoon Stanley Ho and the late Australian casino-and-media magnate Kerry Packer--is one of six casino license holders in Macau, where it runs two casino-resort properties and has a 60% equity interest in a third project still under development. Last year gambling revenue in Macau shot up 42% to $33.5 billion, or more than five times that of the Las Vegas Strip. Though the rate of growth is expected to slow significantly in coming years.
"We are not sold on the concept of the Philippines [and Manila specifically] becoming the No.2 Asian gaming market behind Macau, let alone being big enough to support an additional four major new integrated resorts," said Mr. Govertsen in a recent report.
Brokerage CLSA is more bullish on Manila's prospects, writing in a recent report that factors such as the opening of more gambling tables, a rise in domestic tourism, an emerging middle class and improved infrastructure supported its "Overweight" view on the country's casino industry. The report forecasts Philippines gambling revenue to reach $3.0 billion by 2015 and added that low tax rates and cheap construction costs should underpin a 23% return on invested capital.
Bloomberry Resorts Corp., controlled by local ports magnate Enrique Razon Jr., is also keen on Manila's prospects. His company is set to open a $1.2 billion casino-resort in the same area early next year and has contracted Global Gaming Asset Management, run by former senior Las Vegas Sands Corp. executives, to manage the casino operation.
Other companies with casino licenses who plan to open projects in the area include a joint venture between Malaysian casino company Genting Hong Kong Ltd. and Philippine conglomerate Alliance Global Group Inc., and Universal Entertainment Corp., a pachinko company run by Japan's Kazuo Okada.