Macau: a Gamblers Paradise, China's Las Vegas

Three years ago, even a heavyweight like Las Vegas Sands seeking financing for its Macau projects was more likely to receive scepticism than a loan from its bankers. But nowadays, according to more than a dozen of bankers at the Gaming Asia Pacific Summit, lenders are competing with each other for action at the Macau casino tables. It's all a matter of projected cash flow and growth potential.

The two day GAP Summit in Macau, organised by Euromoney Seminars, brought together financiers bankrolling Macau's grand projects, including Goldman Sachs, AIF Capital, Far East Consortium and Merrill Lynch. Macau Business listened in on their war stories of closing the big deals.

"Next big thing"
Syndicated loans for casino projects seem routine these days, but "it took an enormous amount of time, and effort" of the financiers to make that happen, Citigroup's head of global loans and leveraged finance for Asia Pacific Farhan Faruqui recalled. Citigroup was the lead arranger and co-syndication agent for Venetian Macao, to date the largest gaming financing in Asia at US$2.5 billion.

When those negotiations began, few international investment banks where familiar with Macau, and those who had heard about it replied with "scepticism", Faruqui said. "It took us months, countless trips, meetings to explain to our clients how Macau was going to become the next big thing."

Counting the Sands
According to Faruqui, Las Vegas Sands had all the right credentials: sound management reputation; global code of business conduct; disciplined system of proper disclosure. The decisive factor, however, "was definitely the cash flow". As soon as Sands Macao opened and bankers could examine its revenue and calculate the profit margins, "it all became easier", Faruqui said.

Some deals, though, were harder than others. For its first phase of operations Wynn Macau contacted over 100 banks. The 2004 US$794million deal had two leads, 11 participating banks at an 80 percent sell down. For Wynn's oversubscribed 2005 deal for US$1.5 billion, there were three leads and 25 participating banks. By comparison MGM Mirage wound up oversubscribed with eight leads, 25 participating banks and commitments more than double the initial loan size of US$1.4 billion.

"No" in novelty
Financiers had also to deal with Macau's novelty factor. "There was no established credit for Macau," Huw Jenkins from the Hong Kong office of international legal firm Clifford Chance said. "We had to give it time for banks to readjust their strategies and internal policies." The firm has facilitated deals involving Macau gaming operators Wynn, LVS, Galaxy, MGM, and PBL.

Jenkins also noted how much time - billed, of course - the firm invested in finding ways "to go around" the local legal system. Macau's system is similar to Continental Law, significantly different from Common Law followed in neighbouring financial powerhouse Hong Kong. Most solutions, Jenkins explained, involve offshore funds.

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