Inside Asian Gaming

INSIDE ASIAN GAMING | November 2013 14 COVER STORY a science fiction movie: a sea of craters, construction cranes, power lines, high, sharp cliffs of upturned earth, the steel hulks of office towers and banks yet to be built, all of it seeming from a distance to float in a perpetual fog of yellow dust. The parts of the island that are developable span an area roughly the size of Macau, and 90% of it is undeveloped. To entice Macau banks to set up branch offices their investment threshold has been lowered from US$6 billion to $4 billion. In all, about six square kilometers are set aside for Macau enterprises. One of those is already taken by UMAC. Another 0.5 square kilometers is allocated to a Science and Technology Industrial Park of Chinese Medicine that will be jointly operated by Macau and Guangdong provincial authorities at an initial capital investment of RMB600 million. The remaining 4.5 square kilometers is to be sold via auction. The opportunities for Macau’s casino concessionaires, which appear sizable on the face of it given their resources and experience in resort development, are still being assessed. “Definitely there’s an opportunity. We just don’t know about the restrictions,” says one industry analyst. “And if the Chinese government wants you to invest, whether they will allow companies that are local, like Galaxy, and won’t allow companies that are not local, like Sands, it’s not clear. These guys are flush with cash, so they will invest as much as they can. While it will only be non-gaming amenities you can always accentuate whatever you want to provide your customers with non-gaming amenities. It’s possible to do that on Hengqin.” David Chow is the only gaming operator to date to buy in and he’s done so through an investment vehicle that is separate from the Hong Kong-listed company he controls that owns Macau’s outdoor Fisherman’s Wharf theme park and The Landmark Macau hotel, both of which contain casinos that operate as “satellites” under the SJM concession, the two families, Mr Chow’s and Stanley Ho’s, having maintained close business ties over the years. Last December, Mr Chow picked up 30,000 choice square meters on Hengqin next to the immigration checkpoint, where it’s expected there will be a station on the Guangzhou-Zhuhai Intercity Rail line. He spent RMB250 million for the land and plans to spend RMB1.6 billion to develop it into a “Portuguese”-themed commercial center with retail and restaurants. Mr Ho’s daughter Pansy Ho, who owns a sizable minority interest in casino operator MGM China Holdings, has chosen in an even bigger way to “ride along with the long-term growth story of Hengqin,” as Citi’s Anil Daswani has put it. Ms Ho controls Hong Kong-listed conglomerate Shun Tak Holdings, which her father founded in the early 1970s, a powerhouse in the Pearl River region with far-flung interests in residential and commercial real estate, hospitality, transportation and financial services. Shun Tak owns TurboJET, the largest ferry service in the PRD and holds an 11.5% interest in STDM, the company that used to operate Mr Ho’s former casino monopoly in Macau and holds the controlling interest in its successor, Hong Kong-listed SJM Holdings. Shun Tak won a bid in July for 23,834 square meters on Hengqin just behind the immigration checkpoint for RMB721 million. Plans for the site, which totals more than 131,000 square meters of gross floor area, include office and commercial space, a hotel and serviced apartments. Morgan Stanley, which covers Shun Tak, prices the development at HK$1 billion-$2 billion and says construction will begin this year and finish by 2018. SheldonAdelson hadbig eyes for Hengqin at one time and was reported in early 2006 to have secured permission from the Zhuhai government to submit a master plan for developingtheisland.Thiswasafull18months before the company’s flagshipVenetianMacao opened on the Cotai Strip. Nothing came of it, but it wasn’t for lack of ambition. The company had mapped 1,300 acres of leisure, tourism “You’ve got a dynamic where over some period of time you’ll have many hundreds of thousands of people living there. So it’s almost a bedroom community for Macau, but most likely mainland Chinese residents, and I liken that almost to the locals casino dynamic in Las Vegas.” Grant Govertsen, Union Gaming Research Macau Hotel Room Inventory and Number of Visitors – Las Vegas vs. Orlando vs. Macau Number of Hotel Rooms Number of Visitors (in millions) Las Vegas 150,481 39.7 Orlando 117,396 51.4 Macau 28,125 28.1 Source: LVCVA, VisitOrlando, DSEC, Citi Research