Inside Asian Gaming

July 2009 | INSIDE ASIAN GAMING 27 In Focus By the end of June the market gloom surrounding MGM MIRAGE appeared to have lifted. The company issued a statement in the form of a filing with the US Securities and Exchange Commission saying there was no longer a substantial doubt about its ability to continue as a going concern. Shares of MGMMIRAGE rose more than 8% after the news. It followed a frenetic period of deal making by the company that saw it succeed in raising US$2.6 billion from the sale of debt and equity to offset its accumulated global debt. In April, The Economist magazine reported that debt stood at US$13.5 billion. Speculation also appears to have died down regarding the long-term ownership of MGM MIRAGE’s Macau casino interests. The Malaysian gaming group Genting claimed recently its decision to take a 3.2% stake in the company for US$100million early in June was driven more by a short term valuation opportunity than a medium- to long-term strategic wish to an independent presence as an operator in the Macau market. After weathering the first part of the economic storm in varying degrees about how the money is used. It was widely circulated in Macau gaming circles that City of Dreams, Melco Crown Entertainment’s resort on Cotai, was required to open at the beginning of June under the terms of a covenant requested by lenders. Such enthusiasm for conditions is not unique to the gaming industry, especially in the current bear market. In general terms, however, the tightening of the rules under which investment capital is allocated could have a significant impact on the operators’ bottom lines, given the multiples of cash involved. An example is that if an operator is required to open a resort in a particular time frame by a group of lenders, it could also be required to raise additional cash for working capital to operate that resort, rather than being able to rely on organic growth of other parts of the business to supply that working capital. The biggest, wisest investors certainly understand that they are into the casino operators for so much money that it is not in their interests to kill off the geese that may be laying regular eggs today but are likely to of financial health, the Macau casino operators certainly seem to have bought enough time to think strategically rather than just tactically. The difference between the casino operators and all the millions of other businesses around the world hit by the credit crisis is the sheer scale of the former’s indebtedness—both in hard cash terms and as expressed as a multiple of their annual earning power. The willingness of the financial community to stand the operators so many rounds of ‘drinks’ was precisely because of the perceived long-term earning potential particularly of the Asia-facing part of the gaming industry. Oversight Those fundamentals haven’t changed, but the financial ground rules have. Investors in the casino sector appear less willing to delegate entirely the work of managing their money to the industry’s senior executives in the way they tended to do in a bull market. They have shown a new interest in exercising additional layers of oversight on projects in terms of covenants “As with good comedy, the secret of any successful flotation is timing—and luck in finding a receptive audience.”