Tuesday, July 17, 2012

Macau Gaming license was revoked, Whats the rest worth?

What is the Equity of Melco, Las Vegas Sands, and Wynn worth if its Macau Gaming license was revoked for violations of law, thus subjecting it to asset seizer by the Macau Government?

Real simply: (From Melcos 20-F)

“Termination Rights. The Macau government has the right, after notifying Wynn Macau, to unilaterally terminate Melco Crown Gaming’s subconcession in the event of noncompliance by us with our basic obligations under the subconcession and applicable Macau laws. Termination of the subconcession contract may be enforced by agreement between Melco Crown Gaming and Wynn Macau, but is independent of Wynn Macau’s concession. A mutual agreement between the Macau government and Melco Crown Gaming can also result in termination of the subconcession. Upon termination, all of our casino premises and gaming equipment would revert to the Macau government automatically without compensation to us and we would cease to generate any revenues from these operations.”  Melco 20-F, PG 61

Who's potentially in violation?

Las Vegas Sands / China Sands: 

  • ·         Packer casinos linked to Macau bribes case:  Sydney Morning Herald, Feb 20, 2009
  • ·         New Jersey Gaming commission ruled Pansy Ho, Stanley Ho’s daughter, was an unfit partner for casino operator MGM due to her fathers ties to organized crime.  It seems logical then that Lawrence Ho, Melcos CEO and Stanley’s son, should also be deemed unfit; especially when considering the role Stanley had in starting Melco and the outflows of cash from Melco to Stanley related entities.  Read Melco 20-F (Pages 48-50)
  • ·         See page 8 of my report for a more detailed analysis on Stanley Ho and Co: (ex ties to Gerova Financial and Sino-Forest.)

Casino Junkets tied to all 3:
 “Concessionaires and subconcessionaires are jointly liable for the activities of their gaming promoters and collaborators within their casinos”. Melco 20-F, PG 57

For more information about the Junkets, criminal debt collection, Mafia envolvment, and the dark side of Macau I suggest: www.Casinoleaks-macau.com

Equity Tranche gets Torched.

Violation and subsequent revocation of casino license

Under Macau law, a casino operator’s license could be revoked for things mentioned above.  Should this happen, these leveraged casino companies can not generate cash to meet its bond payments thus would fall into default—insolvency itself subjects a company to license revocation and potential asset seizer.  2 strikes.  Regardless if the government seizes assets or not, when a credit event occurs (missed payment), bond holders can demand immediate repayment in full, which is impossible, so its assets/subsidiaries will be liquidated.  One thing is for sure… equity holders are going to get torched.
Who wins in this situation?

Well the banks and deal arrangers who made millions in fees; the Government of Macau who just inherited casino and hotel buildings at zero cost; the corrupt officials who no doubt will have a piece in the auctioning off of them, and the person most likely to be Johnny-on-the-Spot when those assets are sold at auction—Dr. Stanley Ho, the man who up until 2002 had a 40 year monopoly on gambling in Macau.

All the right people win and all the wrong people lose.

Is this realistic risk?
I think so.  Take a look at a corporate structure at the link below and see how far down the later the concerns of the equity tranche are.

And remember…
  The parties which control 2/3’s of the company….
“will have a substantial influence over us, and their interests in our business may be different than yours.” PG. 31

Donny Shekels

Contact me if interested in consulting research agreements, job offers, or if you just wish to buy out my research.

Next UpReport:  Melco corporate structure evolution: capital flow analysis, comparison between CDO and synthetic CDO's with that of companies “projects”, and support for my personal theory—that Melco is acting as a conduit for Macro Hedge funds building short positions in the Chinese and Hong Kong real estate markets.  How its hidden, merged onto the balance sheet, where it came from, and how the banks construct the short using Melco equity shares (ex Emerson/Grande DB busted).

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