China Star Entertainment Limited has flagged government regulatory policies and expected “uphill challenges in the near future” as the primary reasons for selling Hotel Lan Kwai Fong, which is expected to be purchased by Golden Dragon group boss and former member of the Legislative Assembly, Chan Meng Kam, in early 2018.
In a filing to the Hong Kong Stock Exchange detailing the proposed transaction, China Star pointed to the recent poor performance of its gaming segment – which saw shared revenue fall 22% in 2016 and another 8% during the first six months of 2017 – stating, “There is no sign that the performance in such segment will have substantial improvement in the short term.”
The company also revealed its belief that Hotel Lan Kwai Fong is poorly positioned to capitalize on the Macau government’s push towards mass market tourism and greater diversification.
“Following new resort hotels being opened in Cotai in recent years, there is keen competition among hotels in Macau,” it said. “The Macau government wants to attract more families and mass market visitors interested in non-gaming entertainment as part of its program of economic diversification which favors those resort hotels in Cotai.
“Thus, our performance is diversified by these resort hotels. Since Hotel Lan Kwai Fong Macau is a casino oriented hotel and its hotel rooms are designed to serve and satisfy demands from casino patrons, the board believes that the performance in Hotel Lan Kwai Fong Macau will encounter uphill challenges in the near future.”
Star Entertainment revealed that it expects a far greater return on investment than originally announced by the HK$2 billion sale, up to HK$1.44 billion from an earlier estimate of HK$648 million due to an accounting discrepancy.
Under the conditional purchase and sale agreement, Chan is set to acquire all sale shares and shareholder loans of China Star subsidiaries Charming Era, Exceptional Gain and Most Famous, which would see him take ownership of of Hotel Lan Kwai Fong, Casino Lan Kwai Fong and 18 residential units in Macau being used as staff quarters.
The deal will also see Chan acquire Charm Faith, Classic Management, Best Joyful, Noble Million and Merit Noble, a group of companies held by China Star’s subsidiaries. Classic Management operates Casino Lan Kwai Fong via a service and site license agreement with license holder SJM.
China Star said that it will discontinue its hotel and gaming service operations upon completion of the deal to focus on its remaining two business segments, namely film related business operations and property development operations.