Table game limits a factor
Melco Crown Entertainment Ltd. could acquire the minority investor in its Cotai Strip development. According to GGRAsia, the purchase of New Cotai is “more likely” due to the new gaming table allocation in Macau, analysts at Sanford C. Bernstein Hong Kong Ltd. said in a June 5 note.
“We believe a low table allocation (which is likely in the cards as telegraphed by Galaxy) could be the catalyst for MPEL to acquire New Cotai’s interest in Studio City,” said senior research analyst Vitaly Umansky.
The Macau government’s enforcement of a 3 percent annual cap on live-dealer table games has the market concerned about billions in new development on Cotai. Galaxy Entertainment Group, which was the first operator to open new resorts on the Strip, had asked for 400 tables, and got just 150. The firm has responded by shuffling about 90 tables, bringing them to Galaxy Phase 2 from its other properties, which is permitted under law. The cap is in place until 2022.
The Bernstein analysts noted that MPEL “has some underutilized table capacity, at Altira in particular, but the joint venture structure of Studio City may make table shifting less palatable.”
“Such an acquisition should be a strong near-term catalyst as the overhang associated with the joint venture structure at Studio City would be eliminated and investor concerns about the operational effectiveness of Studio City are removed,” Umansky’s note said. “We believe the shareholders of New Cotai are sellers of their stake and MPEL retains a strong bargaining position in any buyout discussion.”
Melco Crown owns a 60 percent equity stake in the Studio City project; in mid-2011, it paid US$360 million for the majority share. New Cotai LLC, which is funded by United States-based investment firms Silver Point Capital LP and Oaktree Capital Management LP, owns the remaining 40 percent.
In its 2014 annual report, Melco Crown said it might technically default on a HKD10.86 billion (US$1.4 billion) Studio City loan if it is unable to open the casino resort by October 2016 “with a minimum 400 gaming tables available for operation,” GGRAsia reported.
In heartening news for operators, the Bernstein team said additional table games “will be granted in phases. The initial table allocation is not a concern as long as operators can optimize the utilization of their existing table inventory.”
