Inside Asian Gaming

November 2009 | INSIDE ASIAN GAMING 49 Briefs the active planning stage. Mr Tam’s statement followed a meeting on October 12 with representatives of the recently established Macau casino operators’ trade association. The comments were reported in the Wall Street Journal, sparking a steep (though temporary) fall in local casino stock prices. Those familiar with the Macau market will recall, however, the ‘new’ initiatives aren’t really new. The age policy and the slot hall initiative were originally proposed in November 2007. The age initiative even reportedly had the blessing of Dr Stanley Ho. The market capacity cap idea first appeared on the political agenda in April 2008 in response to the then rapidly heating Macau gaming market. Seasoned Macau watchers will also know that the gap between stated government aims and actual practice can often be quite wide in Macau. This is in marked contrast to Singapore, where what the government says is pretty much what the market gets—and often in short order. The fact that these policy initiatives have suddenly popped up again so close to the end of the term of office for Chief Executive Edmund Ho (his tenure ends in December) strongly hints at two things. The first is that Mr Ho’s successor, Fernando Chui, will be inclined to adopt the same policies. The second is that the policies have the blessing of the central government in Beijing. It could alternatively be a shot across the bows of the local casino industry to get its own house in order so that there is no need for actual legislation on the issues. This is a fairly familiar pattern in Mainland China’s administrative system. ‘Police yourselves or else watch out,’ could be the underlying message. Say wat? It seems some Cambodian government officials are under the impression foreign gaming investors have short memories. Word reaches Inside Asian Gaming that the authorities are considering issuing a raft of new slot club licences in at least one of the towns near the frontier with Vietnam. How this will go down with gaming operators that have already sunk a significant number of dollars into the ground to build full service casinos there isn’t clear. Cambodian officials appear to be persisting with ‘who pays wins’ licensing despite the pain suffered by investors following the sudden closure of the Phnom Penh slot club sector earlier this year. Supporters of the Cambodian approach argue there was a very specific and unusual set of political circumstances that led to the great Phnom Penh market implosion. The European or Macau model of strictly limiting the number of concessionaires in a market is normally accompanied by demands by government for a healthy slice of the gross revenue in tax. Gaming operators in Cambodia, by contrast, pay a modest and flat tax on a per machine and per table basis, thus arguably creating incentives for new start ups and opportunities to build the market through free market competition. Leaving aside the tax issue, in free market Nevada in the United States, the assumption is in favour of issuing new licences to applicants. The hard part there is passing the probity test. There is a slight problem with this free market approach when applied to Cambodia, and it’s more to do with the probity of the system than the probity of the applicants. A ‘who pays wins’licensing system creates an incentive for officials to issue as many licences as they can get awaywith in return for‘processing fees’(i.e., a percentage off the top). It also has the potential to create licence fee inflation. This is exactly what happened in Phnom Penh. The hotter the market became, the more the fees rose, until a point was reached whereby the endgame for investors was obscured by speculation on and trading of club licences, rather than by pursuit of the core business of creating gaming entertainment. Multi-billion listing for LVS in Hong Kong Las Vegas Sands Corp (LVS) is expected to launch an initial public share offering in Hong Kong this month to raise up to US$2.5 billion, according to the South China Morning Post . Analysts expect LVS to use its Hong Kong listing proceeds to pay off part of its US$10.8 billion in debt. This may provide the necessary leverage to allow the company to restart work on Cotai plots five and six. Work there was suspended late last year when the company’s auditors issued a warning to US financial regulators regarding LVS’s status as a going concern following the global financial crisis. The company has not so far commented on the SCMP report. The IPO still needs approval by the stock market regulator in Hong Kong, according to the newspaper, but that is regarded in investment circles as a formality. Sources claiming knowledge of the LVS plans reportedly told the newspaper the Las Vegas-based company expects to launch the IPO in mid-November. Sources close to Goldman Sachs, one of the finance houses managing the IPO, briefed some media organisations in the summer that LVS would seek to list a unit in Hong Kong. Wynn Macau’s successful launch last month is likely to have given encouragement to LVS management that the local market has the ‘legs’ to support another major casino company share offering and the liquidity and appetite pay for it. On its first day of trading, on October 9th, Wynn Macau’s stock rose 6.9% above its HK$10.08 offer price to close at HK$10.78, confounding the expectations of those analysts who argued the stock had been priced too aggressively at launch. Renewed investor appetite for Macau-linked securities was in evidence, however, even before Wynn’s Hong Kong IPO. In August, LVS struck a debt exchange deal with its lenders in order to restructure the finances of the local operation. In the deal, the maturity on US$3.3 billion in Macau debt was extended in return for higher interest payments. In September, LVS raisedUS$600million inpre-flotation financing by selling bonds to investors that could convert into shares in the Macau unit following a stock market listing in Hong Kong. The Hong Kong Stock Exchange