Melco seals deal to build second Cotai casino

Developer and casino operator Melco Crown announced yesterday that it would take a 60% equity interest in the developer of the Macau Studio City project for $360 million.

Macau Studio City is a large integrated gaming, retail and entertainment resort that was initially started in 2007, but has been on hold since its original owners ended up in a bitter legal battle.

It is now set to be jointly revived by Melco and New Cotai Holdings, which is an entity controlled by funds managed by Silver Point Capital and Oaktree Capital Management.

Macau is the only place China legally allows its citizens to gamble in casinos and Melco Crown is one of the six licensed operators of those casinos in the former Portuguese colony. With this stake in the Macau Studio City it appears set to open another casino on Macau’s developing Cotai strip, which is home to billionaire Sheldon Adelson’s Venetian property and Galaxy Entertainment’s new $2 billion resort.

The deal calls for Melco to buy a 60% interest in the project developer, Cyber One Group, from an affiliate of eSun Holdings. New Cotai Holdings will transfer to the Cyber One Group the shares of other entities that own the rights to develop and operate the casino to be located within the Macau Studio City project. New Cotai Holdings will retain its 40% indirect equity interest in the Cyber One Group.

Melco will pay the affiliate of eSun $260 million for its 60% interest in the Cyber One Group, and will further pay New Cotai $100 million in cash in three instalments during the course of two years, starting after the closing of the transactions. Citi advised Melco on the deal.

“We remain bullish on Macau’s prospects and believe high-quality new supply, such as Macau Studio City, will continue to drive incremental demand and broaden the appeal of the market,” Melco co-chairman and CEO Lawrence Ho said in a statement. “The property’s theme and demographic focus are designed to be clearly differentiated from our existing portfolio of assets, as well as from our competitor’s facilities in the market.”

“The project’s location is a tremendous competitive advantage, adjacent to the Lotus Bridge and a key stop on the planned light rail system,” he added. The project calls for 2,000 hotel rooms, 200,000 square feet of retail space and various entertainment offerings.

Analysts speculate that this move will enable Melco to open its new Cotai project ahead of competitors SJM Holdings, Wynn Macau and MGM China Holdings, which all have plans to build new properties on the strip, but are awaiting land rights from the Macau government.

Melco currently operates Altira Macau, formerly Crown Macau, a casino hotel located at Taipa, and City of Dreams, an integrated urban casino resort located in Cotai. The company’s business also includes the Mocha Clubs, which feature a total of approximately 1,600 gaming machines.