Packer and Macau casino partner hit the jackpot

Three months after James Packer and his Hong Kong joint venture partner Lawrence Ho agreed to spend USD 900 million (AUD 1.2 billion) buying a Macau casino licence, it is now valued at USD 1.36 billion.

The valuation, done by Hong Kong firm American Appraisal, was released to the Hong Kong Stock Exchange this week as Mr Ho’s company Melco moved to raise AUD 200 million to help fund its Macau casino ventures.

It comes as Melco and PBL are negotiating with international banks to raise a USD 500 million loan for their Macau joint venture, PBL Macau, which will hold the casino licence.

The two companies are also working with Citigroup, UBS and Credit Suisse for a US stock exchange listing of their Macau casino assets to help fund their AUD 2 billion-plus land acquisition and casino construction program.

PBL is applying to Macau casino authorities for permission to buy the full casino licence, following the deal struck in March with Las Vegas casino operator Wynn Resorts.

The shares of both companies have risen since the announcement, with Melco moving this week to capitalise on the strong sentiment accompanying the AUD 200 million fundraising.

A full casino licence, which will extend to June 2022, will allow the partners to open as many casinos with as many gaming tables and poker machines as they like in Macau.

The valuation report estimates that their Macau casino licence could be worth anywhere from USD 865 million, in a worst case scenario, to a high of USD 1.928 billion.

The USD 900 million price tag on the licence was seen as a huge windfall for Wynn Resorts following the USD 200 million price paid by Lawrence Ho’s sister Pansy, who bought her licence last year from their father, Stanley Ho.

The valuation on the Melco-PBL license is based on the assumption that the two will save 12 per cent a year in revenues they would have otherwise had to pay Stanley Ho for the right to operate their casinos under his licence as originally planned.

The valuer estimates that the Packer-Melco group will win anywhere from 10 per cent to almost 17 per cent of the Macau gaming market. It also assumes that Macau’s gaming revenue will grow at around 18 per cent for the next four years, easing off to 5 per cent a year until 2022.

The figure also assumes that the Macau Government will not issue any more than its current six casino licences.

PBL and Melco are building a AUD 300 million six-star Crown Macau hotel-casino, which is expected to open in April next year.

They have also started work on a AUD 1.5 billion mass market casino-hotel-apartment complex called the City of Dreams.

Last month they also announced plans to spend AUD 270 million for a new waterfront site in Macau to build a third casino-hotel.

The filing also reveals that PBL and Melco are still negotiating with banks for a non-recourse loan of USD 500 million for their joint venture company, PBL Macau, to help pay for the casino licence by September.

The partners paid a USD 100 million deposit on the licences in March.

PBL is meeting 60 per cent of the cost of the licence, although it is only getting 50 per cent of the profits from the casino joint venture.

The partners will put in USD 400 million of their own and are hoping that the final USD 500 million can be raised through a non-recourse loan to PBL Macau.

If PBL Macau is not able to raise the USD 500 million in its own right, Melco does not have the internal funds to meet its financial liabilities under the deal.

But Melco has indicated plans to raise funds by equity or debt to help fund its Macau casino investments.

The filing notes that „it is highly likely that a bank loan of USD 500 million can be obtained in due course, although a firm commitment has not yet been received“.

But it warns that „shareholders should be aware that in the event that PBL Macau is not able to secure the bank loan, Melco would be responsible to pay an additional USD 200 million, being 40 per cent of the outstanding USD 500 million upon closing of the agreement“.

The filing also shows that PBL and Melco will have to give up a 10 per cent equity share in their Macau casino business to a local lawyer to meet Macau licensing requirements.

The changes will reduce PBL‘s expected equity holding in the Macau casino venture from 60 per cent to 54 per cent. But the partners will still maintain the proposed 50-50 split of the profits from the venture.