SJM’s offer to help LVS and itself on Cotai could be good news for the whole Macau market
Since 2002, when the Macau government announced in advance the end of Dr Stanley Ho’s casino monopoly in the territory, many commentators have been predicting a slow but inevitable decline in the power and influence of Dr Ho and his casino operating company SJM Holdings Ltd.
But as Inside Asian Gaming reported in July last year in our piece ‘Many Happy Returns’—concerning SJM’s flotation on the Hong Kong stock exchange—not only has SJM’s profitability been relatively resilient, but also its market share has been holding up in rising market. In the first quarter of this year, according to unofficial figures published by the Portuguese news agency Lusa—but normally attributed to sources at Macau’s gaming regulator, the DICJ—SJM held 30% of the Macau gambling market, up from 26% for 2008.
At the same time, SJM has steadily been planning to increase its market coverage with modestly priced but important new projects due to open in the next 12 to 18 months. They include Oceanus—a mainly mass-market casino near the Outer Harbour. Not only does it boast an impressive pedigree with design input from award winning casino architect Paul Steelman—crucially it is closer (within walking distance) to the Macau Maritime Terminal ferry port than LVS’s mass market offering Sands Macao.
Cost control
SJM has also avoided getting loaded with the kind of development costs that are currently proving to be such a burden for the foreign investors. In any case many foreign analysts have tended to underplay the fact that Dr Ho, his family and his companies are in the DNA of Macau.
Not only does Dr Ho have a casino operating licence and a stable of wholly owned and managed SJM casino properties—he also has the right to offer his licence coverage to independently managed casinos. This is a licence to print money all by itself, as SJM receives fees for this service from the casino managements with little or no commercial risk to SJM itself.
Dr Ho also has a long association with the people who bring in VIP players from Hong Kong and the Chinese Mainland to his and now other people’s casinos. In the past that was a handicap for Dr Ho when he sought to expand his gaming interests internationally. Some of the old-style betting agents were previously considered uncomfortably close to organised crime. Now that the world has come knocking on Macau’s door and the VIP trade is increasingly in the hands of publicly listed junket aggregators, Dr Ho’s market contacts and knowledge are seen as a virtue by the financial markets. And VIP play remains the lifeblood of the Macau market.
Dr Ho also has stakes in key bits of Macau’s infrastructure. They include a shareholding in Macau International Airport and in Macau Maritime Terminal, via his investment vehicle STDM. He also has the means of moving customers to and from his properties via the ferries and buses operated by his shipping and property conglomerate Shun Tak Holdings Ltd.
Urgent need
By implication, Dr Ho also has the wherewithal to discourage wherever possible those same visitors from going to his rivals’ casinos. The one place in Macau where Dr Ho’s market coverage is currently weak (by virtue of being non-existent) is Cotai. That weakness will seem more glaring once Cotai’s entertainment offer grows with the opening of Melco Crown Entertainment’s US$2.1 billion City of Dreams in June.
Dr Ho was supposed to have had a casino presence on Cotai at a rock bottom price following a land swap deal in 2006. In the deal, the Macau government indicated it would allow Shun Tak Holdings—a company that Dr Ho chairs—to exchange a 1.1 million square feet piece of land it acquired in Taipa in 2002 for HK$500 million, for a plot on Cotai. Following the arrest, trial and imprisonment for corruption of Ao Man-long, a former Macau secretary for transport and public works, land swap deals went out of fashion in Macau, and public tender for land sales at going market rates became all the rage. SJM was pretty vague in its IPO prospectus last year regarding its plans for Cotai, referring only to “preliminary plans for two mixed-use developments”.
Talks
So the news that Dr Ho has been having face to face meetings with Las Vegas Sands Corp.’s chairman Sheldon Adelson about possible direct investment and/or cooperation on LVS’s Cotai operation could be good news for both parties and for Macau generally.
The scenarios suggested so far—SJM or a related company taking an equity stake in the operation of The Venetian Macao and/or Dr Ho buying out LVS’s interest in Cotai plots five and six (the putative home of a Sheraton Hotel and a Shangri-La property) would help LVS out of a tight spot, give SJM an instant or near instant market presence on Cotai, and help The Cotai Strip™ toward the kind of critical mass of facilities that would make it worth the 20-minute shuttle coach trip or 65-pataca (US$8) taxi ride from downtown Macau.
The story that Dr Ho has offered to buy LVS out of Cotai plots five and six at 40 US cents on the US dollar is doing the rounds in the financial world’s rumour mill. At the time IAG went to press, those reports had not been confirmed or denied. But the possibility of SJM taking an equity stake in The Venetian Macao was voiced publicly at the beginning of April by Dr Ambrose So, a director of SJM. Dr So is an executive generally considered close to Dr Ho. The idea that the Ho family fortunes are waning rather than waxing in Macau is further undermined by other developments or potential developments in the market.
