Billionaire's Plans for Macau Casino Resort Stung by Global Credit Crunch

By William Patalon III
Managing Editor
The Money Map Report

Even billionaires aren’t immune to the subprime-mortgage crisis and the accompanying global credit crunch.

Only a week after the Las Vegas Sands Corp. opened its luxurious Venetian Macao hotel and resort just off the China coast, the Macau casino plans of Australian billionaire media mogul James Parker are being hamstrung by a tight debt market.

Melco PBL Entertainment (Macau) Ltd. (MPEL) – a Nasdaq-listed joint venture between the Sydney-based Publishing & Broadcasting Ltd. and Hong Kong's Melco International Development Ltd. – said this week it had borrowed $1 billion less than the $2.75 billion it had planned to use to develop and then build its “City of Dreams” underwater casino and entertainment resort in Macau. One of the key features will be a hall of baccarat tables encircled by swimming sharks.

Not only that: Because of the global credit crunch that’s grown out of the subprime crisis, Reuters reported that MPEL had to sweeten the price even to get that reduced amount, agreeing to pay an additional 50 basis points in addition to the initial interest-rate margin of 225 basis points, sources told the information firm Basis Point, which is owned by Reuters. The financing came from a banking syndicate that includes Australia and New Zealand Banking Corp., Bank of American Securities (BAC), Barclays Capital PLC (BCS), Deutsche Bank AG (DB), and UBS, according to published reports.

MPEL had announced that it landed the full $2.75 billion financing package back in June.

The company said the current financing package came in two parts: a seven-year loan for $1.5 billion, and a five-year loan for $250 million. The company said that the proceeds would be used to help finance its investments in Macau.

“The recent adverse change in credit market conditions in the United States resulted in a restructuring of the U.S. $2.75 billion commitment secured by MPBL Gaming in June 2007 into the facilities as announced," MPEL said in a statement. "The facilities provide MPBL Gaming with financing sufficient to meet the projected cost of constructing and developing the first phase of City of Dreams.”

According to the company and other published reports, the $1.75 billion will be sufficient to build almost all of the casino and 85,000 square feet of retail space – as well as a Crown Towers Hotel and Hard Rock Café/Hotel with 366 rooms, and a Crownl, as well as the 366-room Hard Rock Hotel, and Crown Towers Hotel, Cotai. The financing should also cover the planned Grand Hyatt Macau twin-tower hotel and a “Theatre of Dreams” with an estimated 1,700 seats.

However, if MPEL wants to also build its planned $353 million hotel/condo/apartment complex on the “City of Dreams” by 2009, it will have to raise more money.

Billionaire James Packer

Publishing and Broadcasting is headed by Packer, an Australian billionaire who is listed as the world’s 114th-richest person, according to a recent report by Forbes magazine. PBL’s holdings include Australia’s Nine television network, 60 Australian magazines and a 25% stake in New Recency Films, headed by fellow billionaire Arnon Milchan.

Packer inherited the empire after the relatively recent death of his father, Kerry Packer. Packer turns 40 years old tomorrow (Saturday). With his father’s death, Packer has been moving away from traditional media businesses and properties and has been moving into the casino-gambling arena – hence his “City of Dreams” strategy.

It’s not been the smoothest of transitions. The Nasdaq-listed MPEL joint venture just last month reported a widened second-quarter loss of $69.2 million, or 6 cents per share, compared with a net loss of $5.2 million, or a penny a share, for the same quarter the year before. A nine-fold leap in operating costs fueled the wider loss, according to published reports. Revenue was boosted by the May opening of its Crown Macau property: Revenue soared nearly nine-fold, too, jumping from $5.5 billion in last year’s second quarter to $45.1 million in the second three months of this year. A so-called “six-star” casino that is targeting high-end gamblers and gamers, the Crown Macau said its share of the total Macau market’s gaming revenue nearly doubled to 4.9% in July from 2.7% in June.

MPEL is one of several outfits looking to capitalize on the growth of China by setting up shop in Macau, a former colony of Portugal that is situated just off China’s southern coast. Gambling is not permitted in China, but Macau is viewed as an exception.

Another firm making a big bet on Macau is the Las Vegas Sands Corp.(LVS), which just opened the doors on its new Macau property, The Venetian.

The Venetian Shines in Debut

The Macau Venetian is the creation of the Las Vegas Sands Corp. (NYSE: LVS), and American billionaire Sheldon Adelson, the company’s chairman and chief executive, who claims the casino-resort dwarfs everything in Las Vegas.

The Sands claims the 10.5-million square foot Venetian is actually the largest building in Asia and is the second-largest building in the world – bested only by an aircraft manufacturing plant that The Boeing Co. (BA) operates in Washington State.

It’s certainly big enough to be a battleship. Or an aircraft carrier. So it was fitting that its recent grand opening initially seemed more like a ship’s christening: Someone smashed a bottle of champagne on the bow of boat – a gondola that will navigate one of the resort’s three indoor canals – and the new $2.4 billion Venetian Macao Resort Hotel just off of China’s southern coast was open for business.

The Macau Special Administrative Region, usually referred to as Macau, is one of two “special administrative regions” in China – the other being Hong Kong. It is 37 miles southwest of Hong Kong and 90 miles from Guangzhou.

Overall, the Venetian boasts 3,000 rooms for guests, a sports arena with seats for 15,000, and retail space for between 300 and 400 stores. It also bills itself as the biggest gaming site on the planet: Its 550,000 square feet has sprouted more than 800 gaming tables and 3,400 “one-armed bandits” (with all-up space for 6,000). It has1.2 million square feet of convention space, fine dining and The Associated Press reports that it will also host a Cirque du Soleil-produced show.

Its decor is inspired by Venice, but with Chinese refinements.

The creators of the Venetian Macao Resort Hotel claim it will “shift the gambling world’s magnetic north” to Macau, a region. Casinos like the Venetian have led this small city over the Vegas “Strip,” to become a hugely lucrative center for gambling and travel.
At the Venetian’s grand opening, Adelson told his audience that “this is the beginning of what has been a dream of mine for some time — to reproduce the capital of entertainment in Asia for Asians."

Shares of the Las Vegas Sands closed yesterday (Thursday) at $102.98 each. MPEL shares closed at $13.90.

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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