Macau reins in development with rejection of Sands' plan for Cotai
Five years ago, Sheldon Adelson stood on a stage at a press conference in Macau and spoke of his vision for an 'Asian Las Vegas' - 20 casino mega-resorts featuring 60,000 hotel rooms that he planned to build on the Cotai strip.
At the time, Macau had only two foreign owned casinos in operation - Galaxy's franchised Waldo and Adelson's Sands Macao. Asked what role former gaming monopolist Stanley Ho Hung-sun might play on Cotai, Adelson was dismissive. 'Mr Ho is not participating in the strip because he has 15 other casinos to protect. If I were him, I would concentrate on protecting those,' he said.
Perhaps he spoke too soon.
Adelson's Sands China said yesterday that the Macau government had rejected its long-standing application to develop another multibillion-dollar casino resort complex on Cotai, on an 110,200-square-metre site also being eyed by Ho's SJM Holdings.
Sands China was caught out by the surprise announcement, having already spent US$102.4 million on pre-construction work on the site.
The government's move against Sands China marks a stark departure from the way land has traditionally been allocated in Macau. It could have implications for developers including Wynn Macau, MGM China and Shun Tak Holdings, which are still waiting for approval for their Cotai land grant applications.
It is also the clearest sign yet that the government intends to rein in runaway development in the gaming industry and follow through on Chief Executive Dr Fernando Chui Sai-on's pledge earlier this year to take back plots from developers who do not build in a timely fashion.
Sands China operates the Sands, Venetian and Four Seasons hotels and is building a US$4 billion Sheraton/Shangri-La complex, referred to as parcels five and six. The company said it received a letter from the Macau government on Thursday denying its application for a land concession to develop the additional 110,200 square metre Cotai site called sites seven and eight. SJM Holdings had previously sent a letter to the Macau government expressing its interest in developing sites seven and eight.
The government letter said Sands China had 15 days to appeal the decision directly to Chui, and 30 days to appeal to Macau courts. Sands China was 'considering all options available to it as set forth in the letter', the company said in a stock exchange announcement.
'This concession denial could be technical and a function of timing, and ultimately the Sands should be able to develop sites seven and eight,' Las Vegas-based Union Gaming Group analyst Bill Lerner said in a research note. 'On the other hand perhaps SJM will be granted all or some of the sites for an opening beyond 2013,' Lerner said.
In 2005 Sands announced plans for a 6,000-room development on the site with four casino hotels - a Hilton, Conrad, Fairmont and a Raffles. But this was put on the back-burner after the global financial crisis of 2008, when the company ran out of funds and was forced to suspend work on all its Cotai projects and lay off 11,000 construction workers.
Sands China has since focused on completing its half-finished US$4 billion Sheraton, Shangri-La, Traders and St Regis complex across the street from the Venetian.
Up to now, Macau casino developers have typically started construction on resort projects after receiving an informal nod or other forms of preliminary approval from the Macau government. Formal land concessions, which take effect only when published in the official government gazette, often arrived years later and sometimes just months before the resorts themselves opened.
'Based on historical experience with the Macau government with respect to our land concessions for the Sands Macao and [other Cotai land parcels], management believes the land concession for parcels seven and eight will be granted,' parent company Las Vegas Sands said last month in a US stock exchange filing.
'However, if we do not obtain the land concession, we could forfeit all, or a substantial portion of, the US$102.4 million in capitalised construction costs related to our development,' it said.
And as for Adelson's 2005 dream of building a 60,000-room Asian Las Vegas on the Cotai strip?
After the government's announcement, Sands China still has 6,000 rooms funded and under construction with a further 4,000 on the drawing board. Including existing properties, that could bring Sands' total room bank on Cotai to more than 13,000 rooms.
But given the land carve-up that continues to unfold on Cotai, competitors may yet match that figure.
Macau has turned down Sands China's proposed new Cotai complex
Unless the decision is reversed, Sands could forfeit advance spending, in US dollars, of more than: $102m