Downturn savages Packer's Macau push, by Eli Greenblat - The Age - 21st May 2009

James Packer's multi-billion dollar bet on the Macau gambling market has been savaged by the global economic downturn after its Melco Crown Entertainment joint venture posted a 55 per cent drop in revenue and a slide into the red with a quarterly loss of of $US35.3 million.

Crown Limited, which owns Melbourne's Crown casino, Burswood casino in Perth as well as gaming assets in Canada and the US, has a 36.4 per cent stake in Melco Crown Entertainment after initially forging a joint venture with Lawrence Ho's Melco casino group in 2006 shortly after the death of Kerry Packer.

The move by James Packer was initially valued at $US8.7 billion and reflected his ambitious strategy to reap earnings for the Crown group from the gambling-mad city state of Macau off the coast of China.

Under the original terms of the partnership Crown, then called Publishing & Broadcasting Ltd, had a post-listing 41.4 per cent equity share in the Macau vehicle which was valued at $4.73 billion.

Together Mr Packer and Mr Ho, the son of Macau casino tsar Stanley Ho, planned to open two landmark casinos, The Crown Macau and the City of Dreams project on Macau's Cotai strip.

However, the economic downturn and dwindling values for casinos in Asia and the US has sunk Melco Crown Entertainment's share price and made it harder for the duo's casinos to attract patrons.

Overnight Melco Crown Entertainment revealed the impact of the global recession on its balance sheet, posting net revenue of $US216.5 million for the first quarter of 2009, down from $US482.9 million for the comparable period ending March 31, 2008.

Mr Ho blamed the fall on an abnormally high win rate and greater rolling chip volume at Altira Macau in the first quarter of 2008.

Documents filed with the Nasdaq exchange in the US, where Melco Crown Entertainment shares are traded, showed adjusted EBITDA was $US21.3 million for the first quarter against $US77.4 million in the first quarter of 2008.

The Company recorded a net loss for the first quarter of 2009 of $US35.3 million. This compared to a profit of $US43.2 million in the first quarter of 2008.

Mr Ho, co-Chairman and chief executive officer of Melco Crown Entertainment said as the City of Dreams casino was scheduled to open on June 1, and the budget is unchanged.

"Our financial position remains strong and our balance sheet is one of the best in the gaming industry. We held approximately $US755 million of cash, excluding cage cash, at the end of the first quarter, and we expect to spend approximately $US244 million on construction activities and pre-opening preparations at City of Dreams from the start of the current quarter through its opening," he said.

For the quarter ending March 31, 2009, net revenue at Altira Macau was $US183.6 million against $US459.9 million in the quarter ending March 31, 2008. Altira Macau generated adjusted EBITDA of $US20.2 million in the first quarter of 2009 compared with $US76.7 million in the first quarter of 2008.

"Although we had a difficult comparison for Altira Macau in the first quarter, we are pleased with the property's results.

"Despite an 11% decline in rolling chip volume and a lower hold percentage, our sequential EBITDA performance remained solid due to strong cost containment programs."

Rolling chip volume was $US9.1 billion for the first quarter of 2009, down from $US19.4 billion in the first quarter of 2008. The rolling chip table games hold percentage in the first quarter of 2009 (calculated before discounts and commissions) was 2.79% versus 3.13% recorded in the first quarter of 2008. Our target rolling chip hold percentage is 2.85%.

At the release of Crown Ltd's half-year results in February, chief executive Rowen Craigie said the Macau gaming market had grown 51.5 per cent in the period January 2008 to August 2008.

Crown's share of Melco Crown Entertainment's normalised result for the half - adjusted to theoretical win rates and excluding pre-opening expenses - was a loss of $11.3 million.

Shares in Crown were down 14 cents, or 2 per cent this morning, to $6.85. (Credit: The Age)

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