The chairman and chief executive of casino operator Melco Crown Entertainment Ltd, Lawrence Ho Yau Lung (pictured), says he is in “no rush” to buy out the minority partners in the Studio City project in Macau. That is because of a gap in valuation expectations between the two parties, Mr Ho told financial magazine Barron’s Asia in an interview.
Melco Crown holds 60 percent of the scheme, while New Cotai LLC – controlled by funds managed by United States-based investment firms Silver Point Capital LP and Oaktree Capital Management LP – owns the remaining 40 percent.
Investment analysts have suggested that a buyout of New Cotai’s stake by Melco Crown could streamline operations at Studio City. Brokerage Sanford C. Bernstein Ltd said in an April note that the 60-40 percent ownership structure of Studio City was “an overhang to achieve optimal level of ramp up and operation”.
The Sanford Bernstein analysts however said they did not expect Melco Crown to buy the minority partners of Studio City “until late 2016 or 2017”.
Studio City opened on October 27 without any junket rooms – a Macau first for the current generation of large scale so-called integrated resorts.
But Melco Crown is now mulling the addition of VIP gaming facilities at Studio City, the company’s chief operating officer, Ted Chan Ying Tat, said last week.
Mr Ho had previously said that the company was not very satisfied with the ramp up of Studio City and its own marketing efforts. Melco Crown in May reported a 34 percent year-on-year decline in profit for the first quarter of 2016. Studio City brought in net revenues of just US$178.7 million, below analysts’ expectations.
“We had a lot of brand awareness and buzz, but somehow our marketing team hasn’t really translated that,” Mr Ho told Barron’s Asia. “We just need to do a better job at marketing ourselves and bundling offers – it’s not rocket science,” he added.
The executive also commented on the decision by Australian casino firm Crown Resorts Ltd to reduce its stake in Melco Crown.
Crown Resorts in May cut its stake in Melco Crown to 27.4 percent, from approximately 34.3 percent. The US$800-million corporate reshuffle also saw Australian entrepreneur James Packer resign from his position as co-chairman of Melco Crown.
Mr Ho reportedly said that the Australian businessman intends to remain a major shareholder in Melco Crown, although he wouldn’t comment on whether the share sale was a one-off.
Crown Resorts meanwhile announced plans to split its overseas business – including its Melco Crown stake – from the domestic business.
“I think it was really perfect timing,” Mr Ho told the media outlet, commenting on Crown Resorts’ move. He added that while Melco Crown’s capital expenditure is expected to be relatively modest in coming years, Crown Resorts has several new projects in Australia.
“In Asia and around the world, we don’t see that many opportunities right now,” Mr Ho said, referring to Melco Crown.
Melco Crown’s CEO also voiced concern over the additional supply in the Macau market. The city’s casino industry last month marked two years of contraction in monthly casino gross gaming revenue (GGR). Such revenue in Macau declined by 9.6 percent year-on-year in May; 24 consecutive months of retreat, official data show.
“If the market had continued to grow the way it was two years ago, then it wouldn’t have meant much. But having the additional supply in a declining market is of course worrying,” Mr Ho said in the interview.
Three new casino resorts are expected to open within the next 12 months in Macau, including: Wynn Palace, by Wynn Macau Ltd; the Parisian, by Sands China Ltd; and MGM Cotai, by MGM China Holdings Ltd.
A Cotai more heavily populated by casinos could however have a silver lining, said Mr Ho, as it would create “more of a cluster”. “There’s still a fair amount of business that’s on the Macau peninsula but I think with more resorts opening [on Cotai], that will draw some of that traffic over,” Mr Ho told Barron’s Asia.
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"The opening of Morpheus only marks the beginning of the relaunch of City of Dreams"
Lawrence Ho Yau Lung
Chairman and chief executive of Asia casino developer and operator Melco Resorts