UPDATE: Macau To Cap Gambling Tables To Rein In Rapid Growth

The Macau government won't approve new casino projects and will only allow 500 additional gaming tables in the next three years, raising questions about operators' major expansion plans.

The decision comes as the government, which currently draws around 70% of its revenue from gaming, seeks to diversify the city's economy away from the gambling industry, with the goal of developing Macau into a popular leisure and entertainment destination.

At the moment, Macau has around 5,000 gambling tables and six licensed casino operators, some of which have projects under construction that could add around 1,300 tables by next year.

But Macau's top gaming official, Francis Tam, told legislators Tuesday that the total number of tables will be capped at 5,500 until 2013, adding that all unapproved projects have already been halted to promote healthy and orderly development of the casino market as gaming revenue continues to soar.

"Those casino developments that have already been approved may continue to complete their construction," said Tam, who is Macau's secretary for economy and finance. "So within the next three years, casino tables will only reach 5,500."

Tam said the casino industry's development in the last few years has become much more orderly, with an annual growth rate of around 4%-5%, compared with much bigger increases in capacity from 2003-2006.

Even so, Tam's comments come as Macau's gaming revenue skyrocketed 66% in the first two months this year, according to media reports, raising concerns the city's gambling market is expanding at an unsustainable pace.

The Chinese government has urged Macau's leaders to cool the city's gambling industry growth because of concerns that many mainland Chinese are gambling away their savings in Macau, the only place in China where casinos are legal.

Casino projects already approved include Galaxy Entertainment Group Ltd.'s (0027.HK) flagship project on Cotai, which will have 600 gaming tables, as well as Sands China Ltd.'s (1928.HK) expansion project that could add 700 tables, based CLSA estimates.

Both projects are scheduled to be completed by mid-2011, the casino operators have said.

But the math doesn't add up with the cap in place unless operators scale down their plans for new tables or remove some of their current tables, raising concerns over how the government will be able to implement the policy cap fairly, casino industry watchers say.

They said there is confusion as to whether the additional table capacity will be allocated on a first-come, first-served basis, benefiting those who have built big early, or if the cap total will be divided evenly among the operators.

"We need a lot more clarity on the policy. It's also unsettling for investors who may now be less willing to finance projects in Macau given the potential for policy changes like this," said Sean Monaghan, managing director at AG Leisure Partners.

"There's never been a cap before so it's not going to be a level playing field for operators," he said.

Galaxy declined to comment. Wynn Macau Ltd. (1128.HK) deferred request for comment to remarks in its 2009 earnings statement Wednesday. Melco Crown Entertainment Ltd. (MPEL), Sands China, SJM Holdings Ltd. (0880.HK) and MGM Mirage (MGM) didn't immediately respond to requests seeking comment.

CLSA analyst Aaron Fischer said he would be surprised if Sands wasn't able to complete its project because of the table cap. "I don't know why the government would punish companies that are building projects that will attract the mass market and therefore have the potential to boost non-gaming revenue," he said

The Macau government said Thursday it had no further comment on Tam's speech on Tuesday.

Tam's statement to legislators Tuesday also suggests operators that have discussed plans to build on Cotai such as Wynn, MGM Mirage and SJM may not be given approval anytime soon.

Wynn Macau said in a statement accompanying its 2009 earnings it is awaiting approval from the Macau government to lease a plot of land on Cotai that would enable it to build an integrated casino and resort there.

The planned table cap follows earlier efforts by the government to rein in fast growth of the gambling industry.

Last week, Macau Chief Executive Fernando Chui said the government will take steps to repossess any idle land being held by casino developers without concrete plans to develop it.

However, analysts largely wrote off the tough talk as political posturing, given complaints about rising property prices.

-By Kate O'Keeffe, Dow Jones Newswires; 852-2802-7002; kathryn.okeeffe@dowjones.com

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