PYE plans Cotai casino; Melco Crown to bear brunt of Macau slot lounge law


melco-crown-mocha-club-pye-casinoIt was a banner week for Hong Kong-based investment, construction and property management firm Paul Y. Engineering Group Ltd. (PYE). First, the company announced it would pay HK$2b (US $258m) to acquire Falloncroft Investment Ltd., which owns the rights to a plot of land on Macau’s Cotai Strip next to the One Oasis residential project. PYE intends to use the property to erect a five-star boutique hotel-casino with 236 rooms and 66 gaming tables, 50 of which PYE says will be earmarked for ‘premium mass players’.

Macau Daily Times reported that a 2009 prospectus indicates Falloncroft had inked a memorandum of understanding with one of Macau’s six concessionaires to provide the necessary gaming license (Macau Business later identified the concessionaire as Melco Crown Entertainment). However, the ‘service provider agreement’ that would allow the use of this license has reportedly yet to receive the government’s official blessing. Including the land price, PYE’s Cotai casino project is expected to cost HK$6.5b, and PYE plans to place 1.8b shares in 2013 to raise some capital.

A few days after this announcement, PYE announced it was partnering with Yau Lee Holdings Ltd. to construct Melco Crown’s Studio City resort casino project. A stock filing announcing the deal put a HK$10b price-tag on the construction contract, which has a mid-2015 timeline for completion. PYE and Melco Crown have a longstanding history, with PYE responsible for developing the Altira Macau (formerly the Crown Macau).

Melco Crown is expected to bear the brunt of Macau’s proposed new policy regarding acceptable locations for the city’s slot machine lounges. Four or five of Melco’s 10 Mocha Clubs slot lounges – as well as the SJM Holdings-licensed Canidrome – may need to relocate as a result of the policy intended to restrict such facilities to non-residential areas. Only one Mocha Club location is actually considered to be in a residential area, but the government’s surprise insistence on restricting non-casino electronic gaming machine locations to “five-star” hotels may require Melco Crown to pull machines from some hotels or even compel the affected hotels to upgrade to five-star designations. Either way, Melco Crown’s earnings can expect to take a small hit once the regulations take effect a year after being published in the official government Gazette.