Melco Resorts Says Odds Long Studio City Phase 2 Completed by May 2022 Deadline
Posted on: July 10, 2020, 12:03h.
Last updated on: July 10, 2020, 12:27h.
Melco Resorts informed the US Securities and Exchange Commission (SEC) this week that it is unlikely to meet the Macau government’s May 2022 deadline to complete Studio City.
Melco, traded on the NASDAQ, is required under US federal law to notify securities regulators on unexpected developments related to its foreign business dealings. The Macau casino giant said the second phase of its Studio City integrated resort (IR) on the Cotai Strip has been delayed by the COVID-19 pandemic.
In the filing, the company said they are still developing Studio City under the terms of a land concession. The terms require the company to fully develop the center by May 31, 2022.
If we do not complete development by that time and the Macau government does not grant us an extension of the development period, we could be forced to forfeit all or part of our investment in Studio City, along with our interest in the land on which Studio City is located and the building and structures on such land,” the filing warns.
The $3.2 billion first phase of Studio City opened in October of 2015. Melco developed the Hollywood-themed IR with US investment firms Silver Point Capital and Oaktree Capital Management. Today, Melco owns a 54.3 percent stake in the casino complex.
Melco Resorts’ SEC filing comes the same day Studio City International Holdings Limited (SCIHL) announced its intentions to raise $1 billion through the offering of senior notes. The first $500 million will be due in 2025 and will pay six percent interest. Notes for the second $500 million will be due in 2028 and pay 6.5 percent interest.
SCIHL also announced the issuing of new Class A ordinary shares, and Melco tells the SEC that it plans to invest up to $500 million in the offering. That would give the casino operator additional control of the integrated resort.
Studio City needs funding after Macau’s gaming industry came to a halt from the coronavirus. Macau remains isolated, its borders closed except to those arriving from mainland China, Taiwan, or Hong Kong. But people granted entry from those three areas still must undergo a mandatory 14-day quarantine.
“We are dependent upon the operation of Studio City to generate our revenue and cash flows,” Studio City said in its filing. “Given that our operations are conducted only at Studio City in Macau, we are subject to greater risks than a company with several operation properties in several markets.”
Melco Pushes Forward
The final development of Studio City will cost upwards of $1.4 billion. The second phase will add 900 hotel rooms, a movie theater complex, one of the world’s largest indoor water parks, and convention space.
Melco says that, prior to COVID-19, phase 2 construction was expected to last approximately 32 months.
“With the disruptions from the COVID-19 outbreak, the construction period has been delayed and is expected to extend beyond the estimated 32 months and the current development period,” the Melco filing declared. “In the event that additional time is required to complete the development of the remaining project for Studio City, we will have to apply for an extension of the relevant development period, which shall be subject to Macau government review and approval at its discretion.”
The casino licenses for all six Macau concession holders are set to expire in June 2022.