Pansy Ho and the land concessions: There are no clear guidelines

The Cotai Strip land grant to Galaxy triggered a lot of concern in Macau. A plenary meeting will be held today at the Legislative Assembly where lawmakers will vote on a motion presented by pro-democracy lawmakers Au Kam San, Ng Kuok Cheong and Chan Wai Chi, in order to question the government officials about the land deal face to face.

The 440,248 square metre land parcel is the largest piece of land granted for private development by the SAR government since it was established. The total area is even bigger than that of the Venetian’s ‘Cotai Strip’ project. The premium is around 2.924 billion patacas.
Meanwhile, Managing director of MGM Grand Paradise, Pansy Ho Chiu King, strongly criticizes the deal. She has said earlier that she was trying to understand whether the Macau government was giving privileges to an individual gaming operator.
In a phone interview on Tuesday, Ms. Ho told the Macau Daily Times the delays of approving a land concession to MGM are hurting the company.

MDTimes: You have mentioned that the land concession to Galaxy created an “unfair phenomenon in the projections for return on investment”. Why?

Pansy Ho: It is very simple: they presented their land application in 2002. They would have already run out in terms of completion timing, which in the original stipulation should have been 2006. Throughout all this period, Galaxy continued to re-submitting their application to the government and continuing doing these revisions, leading to today’s division of the land into four lots. Even between 2006 – which already was the expiry date – and up to now, the government already knew there were all sorts of issues regarding oversupply in the market. Why would, first of all, the government still choose to do the application now, in 2009, and also allow them to further extend the deadline to complete the project? Because on one hand, if the government doesn’t believe there is still room for more hospitality or gaming [facilities] and therefore doesn’t allow land concessions to other concessionaires (like our case, MGM [Grand Paradise] has also made the same application for our second land parcel in Cotai, but it’s been standing for two years without success in securing the commitment or the grant), why did they suddenly grant land to another entity that has not even completed their original commitment, and give them an extended period for future competition? In addition, if other concessionaires like us are not allowed to have a second property site, then let me ask a question: If we want to extend our operations in Macau, should we turn to buy land from Galaxy? Do we then have to pay a hefty premium to another concessionaire because we, otherwise, will be not able to secure any land?

MDT: So, are you afraid that your land application in Cotai will not be approved and that you will have to buy it from Galaxy?

Ms Ho: It does look like that way, doesn’t it? By the way, why did the government grant them all the land that is potentially the most valuable asset in Macau, that could be immediately capitalized for the future development of gaming, and didn’t give it to other concessionaires that have already lodged applications and are ready to make that investment possible? The government grants [the land] to one concessionaire and knows it will not be able to complete the project within the prescribed time, and therefore extends the deadline for the land development. Does it mean that, for instance, we won’t have the opportunity to expand in the future [because no more land will be granted to other gaming concessionaires]?

“ Some of the concessionaires are basically utilizing the land [obtained] at a very low premium - that is already being subsidized because originally it was for the development of the gaming and hospitality industries - and practically using it for more real estate purposes.

MDT: Is it likely that foreign investors from, let’s say, the hospitality sector will propose to Galaxy that they will develop the land and then hand the casino to Galaxy for free? This means Galaxy will be able to make money from the land and also won’t need to invest its own money into the development?

Ms Ho: If we don’t interpret the contract in the [Official] Gazette in a different manner, this is exactly what will be happening.

MDT: You seem not very optimistic about MGM’s Cotai land application. Have you got any feedback from the government regarding the matter yet?

Ms Ho: Nothing. When we initially made our request (and even up to today), there was no clear procedure. Everybody simply just goes and talks to the Chief Executive. If the Chief Executive promises, then what you will have to do next is to write to and remind him about it and hopefully – supposedly – you will also work on the preliminary plan. After wards you can just sit and wait. We have done those steps and we have been waiting for over two years now.

MDT: But you already got the “OK” from the Chief Executive?

Ms Ho: Well, I don’t know if it is still being considered a commitment or not today. Yes, we did of course have the verbal understanding.

MDT: Do you think land concessions to the gaming operators are transparent enough?

Ms Ho: As I told you, there are no clear guidelines. Nobody knows exactly what you have to do about seeking for land grants.
MDT: Do you think that, among all the concessionaires, Galaxy is the one being mostly benefited in terms of land concessions?

Ms Ho: To start with, if you consider the Venetian and Galaxy were originally one concession – we all know how it got to be split up into two afterwards – then I would say that this particular gaming concession is having the largest amount of land jointly in Macau.

MDT: Is MGM losing money in the market competition due to the delays of acquiring land in Cotai?

Ms Ho: It is hard to say if we are losing money because it is always a matter of whether we have the same opportunity. Yes, if we think of it in light of an opportunity loss, of course [we are losing]. In the commercial world, everybody looks for valuation. Who knows in the future, even if we get the land, how much premium do we have to pay?

“ If we are not being offered the similar and equal future development opportunities [than the other gaming concessionaires in Macau], then this is clearly going to hamper the way we could be projecting our future valuation.”

MDT: Do you understand the differences in premiums charged to Galaxy, the Venetian and Melco Crown for their land concessions in Cotai? The land parcels are all on the same location but if we calculate the premiums per square meter, there are some significant discrepancies.
Ms Ho: It is obviously unclear – nobody understands. As I said, there are no guidelines. If we do business in Hong Kong, for instance, there is a very clear system that tells you exactly how you should work out on the land valuation, whether the land will be put up for auctions or you will have to file an application to the government. For the [gaming] concessionaires [in Macau] this is very important, because they are not building real estate, we are really building hospitality products. That is why it is important that the government has what we call “consideration given” for certain huge investments. Hospitality is not really something that has a very strong commercial return. However, some of the concessionaires are basically utilizing the land [obtained] at a very low premium - that is already being subsidized because originally it was for the development of the gaming and hospitality industries - and practically using it for more real estate purposes.

MDT: Are you against the sale of apartment hotels in Cotai?

Ms Ho: Of course! What is this, apartment hotels? There is no such thing!

MDT: You already have the blueprints for your proposed project in Cotai?

Ms Ho: We are not in a very, very mature development stage because we don’t even know at this moment exactly how much land the government will consider granting to us. So, it is not possible to make very sophisticated planning. Indeed, we have already done some work and we have already contacted an architect firm to draw up a set of preliminary plans, which we did submit [to the government] about one and a half years ago.

MDT: Can you provide some details?

Ms Ho: As a sub concessionaire in gaming and with a full understanding that Cotai was originally meant for the development of gaming, gaming related and hospitality tourism products, we’ve submitted a plan similar to, for instance, some of our competitors’ programs, which include casinos, hotels, resort facilities and also some themed entertainment areas.

“We are not in a very, very mature development stage because we don’t even know at this moment exactly how much land the government will consider granting to us.”

MDT: So it will be mixed?

Ms Ho: It will be mixed, but without a real estate component.

MDT: Going back to the land concession issue, why do you think the land concessions in Macau lack transparency? Are they in certain people’s interests or just because the local authorities don’t have sufficient experience in this area?

Ms Ho: I don’t want to speculate, and I also don’t understand why. I should argue that it is not a myth or something that people can claim ignorance about. After 2002, if we only look at the original three concessions, SJM – its sub-concession was given to MGM - up to now has only been awarded by the government new land of 160,000 square meters in total; Galaxy (which now also comprises the Venetian’s land), has already been granted over one million square meters of land, excluding this newly granted land parcel in Cotai; Wynn, which sold the sub-concession to Melco, to date has only been given 300,000 square meters of land. If you add up the figures, about 1.5 million square meters of land have been granted to the gaming operators, which would make eight percent to SJM, three percent to MGM, 31 percent (excluding this new Cotai land) to Galaxy, 39 percent to the Venetian, four percent to Wynn and 16 percent to Melco.

MDT: You mentioned about the land granted to MGM before. Do you think the land concession process for the MGM Grand Macau project was simpler than present?

Ms Ho: Of course, because without the land site it was not possible and not practicable for even the consideration of the sub concession. At least, this was a process that was granted together – the land concession and the sub concession. Right now, we are all going to our so-called second phase – everybody has fulfilled their original obligations to the government. All six concessionaires and sub concessionaires have basically submitted, developed and delivered their original obligations. The Venetian has already built up to their second phase in Cotai; Melco is also in their second phase because the first was, of course, the Crown [now renamed Altira]. Everybody is already on their second phase now.

MDT: Your partners from MGM Mirage have mentioned about the possibility of listing MGM Grand Paradise in Hong Kong. Wynn did it already and Sands is doing it. Is having land in Cotai fundamental for MGM Grand Paradise to increase its potential market value before being listed?

Ms Ho: Clearly it is going to have a significant impact. When you go to the stock market and seek equity financing to issue new capitals, obviously the value will also be determined through the assessment of your future prospects. If we are not being offered the similar and equal future development opportunities [than the other gaming concessionaires in Macau], then this is clearly going to hamper the way we could be projecting our future valuation.

MDT: From your words, I can see that you are interested in listing MGM Grand Paradise...

Ms Ho: Well, yes. It depends on whether there is in fact the possibility to seek listing. Anybody today clearly understands that the gaming proposition is very attractive and appealing. In this particular very pre-heated [stock] market, the IPO of gaming stocks in Macau are very successful. That is exactly why we are even more frustrated [because we can’t take advantage of it at this moment]: there is definitely the appetite, there is definitely the interest. Except if we are being really handicapped by not having equal future development opportunities, then this is going to be a deterrent to how investors are going to look at us.