Melco Crown Hedges Bets in Macau

Sat, Oct 3, 2015

Melco Crown reportedly may buy out its hedge fund partners at Studio City (l.) in Macau in order to own the resort outright. The deal with its U.S.-based investment partners includes a clause stating the new resort must have 400 table games. It is not likely to be granted more than 150.

DB maintains “sell” rating

Australian casino magnate James Packer, majority owner of Melco Crown’s Studio City on Macau’s Cotai Strip, may be planning to buy out his U.S. investors to control the property outright.

According to a report in the Australian Financial Review, Packer could pay $1 billion to buy the stakes owned by hedge funds Silver Point Capital and Oaktree Capital Management through a group called New Cotai. The $1.4 billion loan covering Studio City includes a provision stating the casino must have a minimum of 400 gaming tables. But the government has been very conservative with its allocations recently, and the resort is not expected to get more than 150 tables.

If that’s the case, Melco Crown may follow its Cotai rival Galaxy Entertainment and shift tables from its other local casinos, City of Dreams and Altira. Owning Studio City will give the company more freedom to make those kinds of decisions, AFR pointed out. Bernstein Research analyst Vitaly Umansky agrees. “We believe New Cotai will seek monetization of its 40 percent stake in the near future as the two equity investors have been invested in the Studio City project since 2006,” Umansky told Fairfax Media. “We view Melco’s acquisition of New Cotai’s interest a very likely outcome, as Studio City will need tables transferred from other Melco properties to optimize value.

“We further believe that Melco Crown is at a clear negotiating advantage over New Cotai because Melco is the only natural buyer of the 40 percent stake,” he said.

Packer and his Melco Crown partner, Lawrence Ho, hope Studio City gets more tables because of its nongaming attractions, including a Batman-themed virtual-reality ride and Asia’s highest Ferris wheel. But Deutsche Bank is still bearish on the company. DB’s “sell” rating and fallout from the Macau junket theft caused shares to dip 4.4 percent in late September, according to Bloomberg News.

Meanwhile, The government of Macau has agreed to allow Melco Crown to change its planned five-star hotel at Studio City in Cotai to a four-star hotel. The Hollywood-themed hotel resort is slated to open October 27.

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