Inside Asian Gaming

40 SJM IPO Stymied Lawrence Ho’s IPO ambitions may have been fulfilled, but his father, Stanley Ho, remains stymied in his at- tempt to raise HK$15 billion (US$) by selling shares of his company, Socie- dade de Turismo e Diversoes (STDM), parent company of gaming conces- sion 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 com- panies. Melco and ceded chairmanship of the com- pany to Lawrence Ho. Crown Contribution Melco PBL currently owns six Mocha Slot out- lets with about 1,000 slot machines around Macau, while Melco also owns an investment banking firm, the Jumbo Kingdom float- ing 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 gam- ing technologies in Asia, as well as distribute Shuffle Master’s existing products in the re- gion.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 Fi- nancial 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 pushingMelco’s share price steadily upwards, but it appears the delay is now giving inves- tors time to ponder whether Melco PBL can secure a niche in the market, and compete with glitzy new casino offerings from Las Ve- gas 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 op- erators 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 gen- eral,” 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 proj- ect 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 com- plex with the Macau government, and given soaring prices of commercial land, the ven- ture 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 flag- ship 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 ca- sino, 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 fea- ture 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 spectacu- lar world-class permanent show at the City of Dreams in a stand-alone performance hall with a seating capacity of around 2,000 de- signed 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 apart- ment 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 ca- sino at Macau Studio City, a retail and enter- tainment complex scheduled to open in 2009 on Macau’s burgeoning Cotai Strip. BY APPOINTMENT ONLY Avenida da Praia Grande, China Law Building GF, Macau Tel: 331521 spa