You have kept your word and City of Dreams has arrived as planned. What made you risk this opening when the market is less appealing than in previous years?

Lawrence Ho: I think in life there is no perfect timing and at the end of the day for us the way we manage the business has been on the conservative side in terms of stretching our balance sheet and over committing ourselves.
We have been conservative in the last few years and we raised all the necessary equity in 2007 and 2008 and even very recently we raised a little bit more equity just to provide a little more buffer for us to manoeuvre.
We have always been committed to delivering the City of Dreams as per the timetable, and since all the financing was in place, and of course once you borrow bank financing you do have during a year or two a banking schedule as well, for us is just full steam ahead.
From a more realistic and practical point of view, you let me choose between opening the City of Dreams in June this year when there’s only one casino open, or when Crown Macau opened in May 2007, when there were four casino openings, I choose this time. The Crown Macau experience, now known as Altira, is infamous because it was so horrific.
We had trouble finishing the project because the contractors were trying to hold us hostage saying that between MGM and Venetian they had plenty of jobs and if we couldn’t pay them more  they wouldn’t even come to work.
Now the whole world has changed because these contractors, due to the layoffs at [LVS] sites five and six and the stoppage of other projects at Galaxy, these guys are happy to have a job.
Therefore, in terms of workmanship they are putting a lot more effort and energy into finishing the product which is great for us. The budget is on target, so, all-in-all the experience this time around is a lot better and of course we have learned from our mistakes in the past and we have managed to better ourselves. But without these macro external factors it is very likely we could have run into similar situations. All-in-all it’s not bad.

Be in the top three

And of course you gain momentum by succeeding when others are succumbing. Surely this makes you smile, at least for the time being…

I think what makes me smile now - and you’ve known me for a long time - is that our company is one of those  that doesn’t have any superstars and suddenly everybody is cheering for us. I saw Francis Lui interviewed in the Chinese paper [recently] saying that he was hoping City of Dreams would open well because if we open well they will continue the Galaxy development.
Likewise, Sheldon Adelson is saying that once City of Dreams opens it is almost the completion of the first phase of the Cotai Strip. I guess it is in everybody’s interest that we open well because from their financing stand point we are good for them, the banks will reopen themselves.
It was such cutthroat competition on junket commissions last year, everybody was willing to cut off each others head for a little bit extra business and now all of a sudden everybody is behaving. Now everybody is happy and united. I think something good has come out of this downturn.

What would be your ideal first quarter results after opening City of Dreams?

Well, I don’t want to go into the numbers because I have had my fingers burned before. I think a lot of what the gaming industry analysts say is watched very closely by one of the major investment banks. I was tricked into answering a question about market share some days ago, and don’t want to do that again. Anyway, market share is misleading because as you know in VIP you have a very high market share but there’s a tiny margin because there is so much cost in between. I think with the City of Dreams opening the philosophy is integrated results. There’s VIP but then the bulk of the focus is really on the mass, multi-stay and premium segments.
As you know Altira’s predominant focus is VIPs. We definitely hope to improve our margin significantly and at the same time, of course, with the size of City of Dreams, we certainly hope to be one of the leaders in terms of market share as well.
Having said that, we are not going to go blindly chasing market share. To us the most important thing is delivering value to our share holders in the form of stronger earnings.

But you are looking at trying to have a regular place among the top three operators in Macau?

We hope so. There’s never a correlation between how much money you invest in a place and how much you make out of it. If you think about it, a lot of people miss out on this point. We have actually invested more money in Macau than anybody else. City of Dreams [investment is] US$2.1 billion, without the land ñ all up it’s probably closer to US$2.5 billion if you put in the pre-opening and everything, plus about US$400 million for Altira, that’s US$2.9 billion and we bought Steve’s license for US$900 million.
In terms of purely investing in a place we are actually putting in more money than LVS. I think that given the amount of capital that we have invested we certainly hope to be one of the leaders.

Can you evaluate your gaming experience so far. What went as expected up until now and what went wrong that you need to change drastically?

I keep an open mind because things usually don’t happen as you plan in life. The very first [gaming experience] was Mocha which we opened in 2003 and nobody would have guessed and even I didn’t think it would be possible to have such an overwhelming success. We grew from one tiny Mocha in Hotel Royal with 70 machines into a chain of three and that’s why we embarked on building Crown Macau and started developing the City of Dreams and that’s when I brought in Crown Australia as a partner.
When I first went to Crown in Australia I didn’t know anybody. I literally knocked on the door and asked ‘do you want to partner with me?’
Less positive experiences in terms of how something unexpected goes bad was the Crown Macau opening. I don’t think anybody, including me, was ready to be so shocked by how bad that property opened because all the properties up until then opened pretty well. We opened empty, deserted and operated very poorly.
However, even more unexpected, was how suddenly we became the largest VIP gaming casino in the world for most of last year and even right now, we are in the top two in terms of gaming revenue. That’s why I always keep a very open mind and approach. I say that if you run into problems you should think of ways out of them because the gaming industry traditionally, I would say, is not very innovative.

Now that City of Dreams has become a reality is the sale of Altira a possibility?

Not at all. It’s a rumor that people came up with during the restructuring and when we changed the name, but that has never ever crossed our minds. We made US$165 million in terms of free cash flow out of Altira in 2008 and as I said early on, we have invested 380 million. So, in terms of return of investment that was magnificent. I designed Altira myself and I have a lot of attachment to it. We are very proud to have a number of design awards, we won the award for best pool, and we have been honored with a Michelin award in one of our Chinese restaurants. It’s strategically important for us. We have one of the most conservative balance sheets in all of Macau and we are not in need of cash. Also, I’m not certain, whether it be the Central or Macau Government, there is a desire for  the casino companies not to start selling their assets, unless they are completely forced against the wall.

Asian growth

You showed some interest in investing in Taiwan, now that the island has begun the process of legalising casinos. How anxious are you to gain a gaming foothold outside of Macau and raise your profile in the region?

I’m a big believer in gaming in Asia, it’s where the growth is going to be in the next 20 years. We have looked at all the jurisdictions that you can think of. I know you know that we have a small slot machine presence in the Philippines and we had some experience in Cambodia and Vietnam, none of it pleasant. The first consideration that we look at when we go to these new places is political risk, country risk and that’s why the smaller countries and emerging markets are not worth it.

Like Cambodia, for instance…

We got killed, we really got killed. We had ten slot clubs and over night, puff, they were gone…
Anyway, political reasons are very important. I still remember four years ago James [Packer] and I went to see Thaksin in Thailand. Who was to know that one year later he would be a fugitive? So, political reasons are very important. I think the complexity with Taiwan is its relationship with China and therefore if we don’t have the blessing from China to do something in Taiwan we wouldn’t, because first and foremost I am a Chinese person and both my father and I are very loyal to Beijing and China and we have invested so much money in Macau.

How do you evaluate the first 10 years of Macau as a SAR? The good, the bad and the ugly?

The good is if Macau didn’t bring all that foreign capital and Edmund Ho didn’t open the industry the way he did I don’t think Macau would have developed that quickly to be brutally honest. Because competition drives people and that’s why when all that money came into Macau, it really drove it.
I think the first term was almost heavenly; it was amazing from 1999 to 2004 and all that development in between. When I first started raising money for Melco to develop Mocha and for Altira I went to England and people asked me where Macau was and I said it was that dot next to Hong Kong. People didn’t even knew where Macau was in 2003 and 2004. And now the whole world knows where Macau is. There are a lot of achievements that this administration has made.
Now, the bad. Although it developed so quickly, the infrastructures never caught up, even though they had some time to do it. The Ao Man Long incident screwed up the pace. The road widening projects that they have planned, the light rail system that has been talked about forever… Come on, I still don’t know how a one storey structure takes longer to build than the City of Dreams. These things, they could have done. With the tax revenues that they had before, they could have done a little more. I think that’s the bad. I don’t think there’s really an ugly side. The first term was amazing for the administration and the second term was just coming back down to reality.

Printer friendly version

Email this article to a friend

Bookmark this

---