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MACAU BUSINESS
source inside Macau Studio City said. Suing for face
So in 2006 Lam sold 40 percent of the project plus The partners told participants in the project they
the exclusive right to operate the casino for $200 would work things out, but in late October, eSun filed
million to New Cotai, a partnership created by David a lawsuit against New Cotai, seeking HK$689 million
Friedman, a former Las Vegas Sands executive who in damages.
helped open the Sands Macao. “With the lawsuit, Peter Lam can say to the
US hedge funds Silver Point Capital, with a government that he’s trying every available means to
majority stake, and Oaktree Capital Management find a settlement,” the source said, adding: “He’s
were behind New Cotai. giving face to Edmund Ho.”
“They are financial investors,” a source noted. Several signs point to the impasse being broken in
“They didn’t have any strategic vision for the project. the coming months, before Chief Executive Fernando
They just see spread sheets.” Chui Sai On’s administration loses patience and
On January 10, 2007, eSun held a ground-breaking revokes the land grant.
ceremony for Macau Studio City. Both sides are reportedly looking for new partners
Concurrently, it announced that the development to replace the other. Macau’s upturn in recent
would include a 500,000 square foot casino under months could make lenders more receptive to the
Melco Crown’s license and that Singapore project, once ownership issues are resolved.
government-controlled CapitaLand had taken a 20 The resumption of work on the Cotai Strip
percent stake in the project for US$100 million. indicates a new threat to Macau Studio City,
foreshadowed by the Playboy pullout.
Five-headed dragon “What will be bigger news is when the hotel
Despite the ground-breaking and new allies, eSun agreements expire,” another source said.
still needed to borrow up to US$1.5 billion to The Taubman and Playboy deals stipulated they
complete the project, while New Cotai – known as could pull out if the project was not started by a
“the Americans” to insiders – wanted to fund its certain date, a common feature in agreements with
portion with its own cash. But banks wouldn’t lend hotels brands as well.
to eSun for the project without the cash flow from “The only reason a flag [hotel brand] would pull
the casino. out of an agreement is if another project under
“At least with LVS [Las Vegas Sands, owners of the construction wants them. But no-one was building
Venetian Macao and Sands Macao] you’ve got one over the past 12 months in Macau, so there were no
borrower, one cash flow,” another source said. opportunities.
“Macau Studio City was a five-headed dragon, “Now with Macau Studio City in litigation and Lots
with cash flow divided into several parts…The 8 and 9 building, you could see some tenants shifting
[global economic] crisis gave banks an excuse to or brands changing”.
walk away, but the fragmented ownership was the
real problem.” East wind rising
Creating a single entity that could borrow from the A political current running against giving
banks would require the partners to restructure the western companies a bigger stake in Macau’s casino
project, or for one side to sell out. business makes eSun the favourite to win any tug-
Either step meant facing the reality that despite of-war.
the percentages on paper, New Cotai’s 40 percent “The Macau and Chinese governments want
plus the casino stake in Macau Studio City, would be Chinese ownership of projects and Chinese banks
worth more than the 60 percent stake held by eSun funding them,” the same source said. “They want
and its ally CapitaLand. control.” This insider sees Melco Crown or SJM
The partnership agreement reportedly doesn’t have partnering with eSun, or even buying out both sides
a deadlock provision to resolve disputes or a buy-sell to build Macau Studio City.
clause that could force a partner to divest, so the The Americans might also be ready to sell, the
disagreement became an impasse. insider says, adding: “For a hedge fund that’s got this
Hanging over the partners was the prospect that one stalled development project in Macau and all
Macau’s government could take back the land if the these distressed assets available elsewhere – if
project didn’t progress. someone came along and offered them a way out at a
After Taubman withdrew, Macau Chief Executive dollar for a dollar, they’d take it. New Cotai is a
Edmund Ho Hau Wah called in the Macau Studio City dispassionate investor.”
partners in September last year, another source said. Even if there might appear to be something of a
Ho said he wanted to see action on the project crack in the impasse, don’t expect this project to
before he left office, when China’s top leadership move quickly.
would be in town for the Macau SAR’s tenth Between resolving the litigation and ownership
anniversary celebrations. issues and gazetting, it’s unlikely construction will
That prompted Lam and New Cotai to restart begin before early next year.
negotiations: “It was the first time in 12 months The script for Macau Studio City is going to
that the parties had any dialogue,” according to the need plenty more rewrites before its opening
same source. night…
16 FEBRUARY 2010
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