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 major expansion plans of operators.
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 on 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.
In response to Tam's comments, Sands China President Steve
Jacobs told Dow Jones Newswires Thursday the company believes "the
Macau government is sincere in its efforts to diversify and that it
recognizes the integral part sites five and six play with regards
to growth in hospitality, business, leisure tourism" and exhibition
businesses. Sites five and six refer to Sands' Cotai expansion
project under development. "We believe in the future of Macau and
Sands China remains committed to working in partnership to help
diversify the economy," Jacobs said.
Among other operators, Galaxy declined to comment, while Wynn
Macau Ltd. (1128.HK) referred requests for comment to remarks in
its 2009 earnings statement Wednesday.
Melco Crown Entertainment Ltd. (MPEL), 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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