Inside Asian Gaming

INSIDE ASIAN GAMING | July 2011 16 In Focus was somehow in political trouble and that this was a snub to Lawrence Ho, the co- Chairman of Melco Crown Entertainment. MPEL recently took a 60% equity stake in the project. According to IAG ’s sources, that may be a significant overstatement of the position. They believe the reason the re-gazetting of the 32.3-acre plot—on Cotai next door to the Lotus Bridge crossing point into mainland China—never took place was not because the government opposed it, but because of practical planning considerations on the MSC side among the shareholders at that time. Submission of and approval for re- gazetting of the Macao Studio City site for gaming would have triggered two things. First, a requirement to pay an additional land premium to reflect that new permission. Second, it would have started the development countdown. That’s a protocol whereby a developer has to pass certain construction milestones in a certain amount of time. But the shareholders in the project at that time were not in a position to trigger the development countdown because several were involved in an internal dispute. The cut off point for development of the site—at which time MSC could theoretically have lost the land—was originally 2013. If gaming is now to be officially confirmed for the MSC site, then an additional land premium will have to be paid to reflect that permission. But MPEL and its partners in the MSC project will be wary of making public pronouncements on the land use issue until they have the clear and unequivocal public blessing of Macau’s Chief Executive for a gaming resort. They will be mindful of some of the political problems encountered by Las Vegas Sands Corp. On several occasions, that company thought it had reached a private understanding with the Macau government and then made what turned out to be premature public announcements—including a claim that it had resolved the Cotai land title issue affecting the proposed sale of apartments in the Four Seasons Macao. “Investors aren’t going to write cheques for Macao Studio City unless there’s some assurance from the government that there’s permission for gaming. There has to be at least some oral assurance from the government that gaming will be allowed on that land,” said the person familiar with planning procedures. Even if that worst case scenario came to pass, and a casino wasn’t allowed on the MSC site, it’s unlikely that any other leisure project on that kind of scale would be viable on that site without the cash flow provided by gaming. MPEL Co-Chairman Lawrence Ho—in the know or in the dark? Caution—elephant in the room The Macau government’s willingness to manage the market at a micro level leaves some question marks surrounding Macao Studio City A nother source says a bigger potential threat to the Macao Studio City project than the land use question is the table cap issue. The current market cap of 5,500 live tables is due to expire at the end of 2013, before the revamped MSC project will be completed. But if Macao Studio City is to go to the markets for fresh equity and some debt funding, as Lawrence Ho indicated in a press conference recently, then investors may want assurances that MSC will be able to get all the gaming tables it needs to make the financial structure of the project viable. “In order to get this project up and running, we are going to go to the debt markets again, and there’s going tobe further equity that will be required of both Melco Crown and also New Cotai—Silver Point and Oaktree,” Mr Ho told the press conference at City of Dreams following the news of MPEL’s 60% equity stake in the project. “For financing purposes, we will look to Macao Studio City—the project company—to go and try to get debt and bank financing and we certainly hope that we can get non-recourse financing for the MSC project,” he stated. Mr Ho added he envisaged MSC would have 400 gaming tables and 1,200 slot machines. But sources spoken to by IAG say it might be difficult for Western banks to sign up to MSC without specific government guarantees on the size of the gaming component. “Is the government going to give investors a sheet of paper guaranteeing the project the tables they need and that there won’t be a fresh table cap between now and 2015? I don’t see that happening,” says one source. “In that case, it could push the US banks out of the picture. Then you’d be looking at just Chinese banks to fund it. That’s feasible of course, but it would be the first time it’s happened on Cotai.” The number of tables in the Macau market stood at 4,853 at the end of the first Macau Chief Executive Chui Sai On—asked to adjudicate?