Gaming: Delays in Galaxy’s land grant cost MOP66 million

Time is money, so they say. And so it was regarding Galaxy’s land grant on Cotai, where the company is building its new mega resort. The Macau Government took almost seven years in drafting the concession contract for the plot and, meanwhile, it lost the chance to earn MOP66 million in rental income.

According to the concession contract published in the Official Gazette in October 21, 2009, Galaxy is oblige to pay to the Government an annual rent of MOP13.2 million (MOP30 per square meter) until the company finishes its construction project. Afterwards, the annual rent jumps to a total of MOP 27.3 million, a price fixed according to the facilities projected for the property. For instance, each square meter of casino area, hotel area or convention facility area costs MOP15 per year; the price for parking space or free area is MOP10 per year. The Macau Government may revise the annual rent every five years.

This is not the first time that the Government loses the chance to get annual rents due to delays in drafting concession contracts involving the gaming operators. It also happened in Venetian’s case, involving a total of MOP24.3 million – the company started working on the plot in July 2004, but the land deal was only published on the Official Gazette in April 2007. More recently, the same happened with Melco Crown’s City of Dreams.

The problem is that the annual rent can only be charged after the final contract is in place. According to information provided by the Land, Public Works and Transport Bureau (DSSOPT), Galaxy first got the preliminary approval to start the construction works in Cotai in September 2004. This means more than five years before the final contract was published in the Official Gazette and became in place. So, Galaxy was able to work on the land for five years without needing to pay any annual rent.
Galaxy already had applied for the land in November 2002 (at that time, it was still together with Las Vegas Sands as no sub concessions had been allowed). However, the Government needed a total of almost seven years to finish the concession contract.
The DSSOPT has said that the delays were due to the huge scale of the resort project and the multiple modifications in the construction plan carried out by the company as promoted by changes in Macau’s economy. In addition, the DSSOPT said that since the land parcels for Galaxy included a piece of land which was already granted to Kerry Properties Limited through an open tender before the handover of Macau, the Government had to negotiate with the company so as to void the contract and recall the land.
This is not the first time that the Government loses the chance to get annual rents due to delays in drafting concession contracts involving the gaming operators. It also happened in Venetian’s case, involving a total of MOP24.3 million – the company started working on the plot in July 2004, but the land deal was only published on the Official Gazette in April 2007. More recently, the same happened with Melco Crown’s City of Dreams.
In May 2007, Jaime Carion, DSSOPT’s director, explained that the Government couldn’t charge any rent until there is an official contract that states that. And the contracts made with the gaming concessionaires don’t oblige to retroactive payments.

The need to pay rent (and how much) was not even mentioned on the information Galaxy sent to Hong Kong Exchange about the acquisition of the plot in Cotai. There, the company only mentioned that the deal was “subject to, among other things, the payment of the Premium” of MOP2.9 billion.
The property is located at Estrada da Baía de Nossa Senhora da Esperança and Avenida Marginal Flor de Lótus. It has a site area of approximately 440,248 square metres, which can be developed into hotel, hotel-apartment, gaming, entertainment, leisure and other related facilities with a total buildable gross floor area of 1,703,714 square metres and landscaping area of 292,985 square metres, according to Galaxy.

More land ahead

While some lawmakers are still questioning Galaxy’s deal grant, a new one is already on the way, this time to Sands. According to information provided by the company in its IPO prospectus, presented on Sunday, Sands is already on the final stage of getting the concession for the land where it pretends to build a total of three hotel and mixed use towers in Cotai – the so-called Parcels 5 and 6 of Sands’ Cotai Strip, which saw the construction works frozen one year ago due to the financial crisis.
“On November 11, 2009, we received a final draft land concession contract for Parcels 5 and 6. The final draft land concession contract, which was approved by the Chief Executive of MSAR, incorporates all the terms and conditions as agreed between us and the Macau Government”, the prospect mentions. “Both the acceptance of the land concession and the initial land premium payment, amounting to MOP700.0 million, must be completed within 20 days of receipt of the final draft land concession”, it adds. The total premium will be of approximately MOP1.9 billion.
“We intend to accept the draft land contract” before November 30, 2009, says Sands in the IPO prospectus.
As for Parcels 7 and 8 of the Cotai Strip (besides Parcels 5 and 6), Sands mentions on the prospectus that it still hasn’t got “all the necessary Macau Government approvals”. “We intent to negotiate the land concession for Parcels 7 and 8 upon successfully obtaining the land concession for Parcels 5 and 6 and believe we will be successful in obtaining it”, the company states. However, Sands still has no expected time line for obtaining the land and says it is still unable to estimate the land Premium.
Meanwhile, also in the IPO prospectus, Sands mentions that under the original land concession relating to Parcel 3, just besides Plaza Macao, the company was required to complete the development of the land by August 2011. However, “the Macau Government has agreed to provide us with an extension for complete the development of Parcel 3 by April 17, 2013”, Sands reveals.