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Best of Howard Stutz

Gaming Guru

Howard Stutz

Macau may take back land promised to casino operators

17 March 2010

LAS VEGAS, Nevada -- Four of Nevada's top casino companies -- Las Vegas Sands Corp., Wynn Resorts Ltd., MGM Mirage and Harrah's Entertainment -- could be hurt by a move made Tuesday by Macau's top leader.

Macau Chief Executive Fernando Chui said the Special Administrative Region of China may seek to reclaim land promised to casino operators, with the sites being used for other development purposes.

Chui, who has been on the job for less than three months, made a public-policy speech and commented to the media. The speech involved two trains of thought.

Several analysts and gaming company insiders wrote off the comments as political posturing. But others thought Chui, who replaced Edmund Ho as Macau's top government official in December, was looking to slow casino development, telling Las Vegas-based gaming operators they need to submit plans for the sites, predominately on Macau's Cotai Strip region, or lose the locations.

Chui told media after his prepared remarks the government would follow all legal procedures to reclaim land not being developed.

"The whole process will be made very transparent, but the land has to be taken back and some of it will be used for social housing," Chui said.

Each of the Las Vegas companies may feel the impact differently.

Las Vegas Sands, which has three Macau casinos, plans to restart development this summer on four Cotai Strip projects stalled in midconstruction more than a year ago when the company ran into financial trouble. Las Vegas Sands has two other undeveloped Cotai Strip sites.

Wynn and MGM Mirage, which operate casinos in the Macau Peninsula region, have expressed interest in building resorts on the Cotai Strip.

Harrah's does not own one of Macau's six gaming licenses, but the company spent $577.7 million in 2007 to acquire a golf course near the Cotai Strip in hopes that more gaming licenses would be issued. Chui made no mention of increasing the number of casino operators in Macau.

Macquarie Securities gaming analyst Gary Pinge, who is based in Hong Kong, told investors the Macau government wants to build small residential developments for the middle- to lower-end market. The repossessed land could be used for that purpose.

"Other than those casino developments already approved, any further applications for casinos will be tightly controlled," Pinge said in a research note. "We believe that the underlying message is no further casinos will be built on Macau in the foreseeable future."

Sterne Agee gaming analyst David Bain said casino company shareholders are concerned "the new chief executive may be utilizing some specific language about needing to diversify or cap the growth in Macau."

But the Chinese government, he said, may wait until after Las Vegas Sands opens its $5.5 billion resort in Singapore next month before enacting any new gambling legislation.

Union Gaming Group principal Bill Lerner thought nervous investors who were anticipating "explicit measures" to slow gaming growth in Macau found some relief in Chui's remarks.

Lerner said the Chinese government's actions to curb money and visitation into Macau could lessen 2010's annual growth.

In 2009, Macau casinos collected $15.5 billion in gaming revenues, a 14 percent increase over 2008. However, 2008 had a 31 percent increase in gaming revenues following revenue growth of 47 percent in 2007 and 23 percent in 2006.

The only casino slated to open in Macau this year is Wynn's $650 million Encore project.

Chui said Macau would allow new casinos as long as construction plans had been approved.

"Apart from those we have agreed in principle in the past, in construction and those already approved, we will regulate (the building of new casinos) in the future," Chui said .

The comments left questions about development projects in Macau. Pinge said the impact could be on companies banking land on the Cotai Strip.

Last month, Wynn Resorts Chairman Steve Wynn told analysts during a quarterly conference call that the company was several months away from finishing the initial designs for a Cotai Strip hotel-casino that would cost "a couple of billion dollars," adding that new ideas had slowed the process.

"We can't think of a better place to build it, all things considered, namely the work force and government policy," Wynn said. "We are constrained by the political process itself of getting the entitlements and the details done through planning and public works in Macau. We're full tilt at that and our own planning process."

Pinge said the policy address, taken literally, could affect Wynn.

"Any decision to repeal this land bank would have negative implications on the growth outlook for (Wynn) given lack of exposure on Cotai," Pinge said.

MGM Mirage spokesman Alan Feldman said company officials in Macau, along with joint venture partner Pansy Ho, have been in communication with the government concerning a Cotai Strip project.

Las Vegas Sands has submitted design plans for two Cotai Strip sites and has moved forward on some preliminary site development.

"Even if this land was repealed from Sands China, we would not see this as a negative since the company already has close to $7 billion invested on Cotai," Pinge said.

Macau may take back land promised to casino operators is republished from