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Macau Gambling Industry Gripped by Labor Shortage

Posted on August 28th, 2010

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Excitement and high expectations over the general performance of the casino gambling industry in Macau took a bit of a damper when one of the major players, Sands China, said that there will be delays in the completion of 2 projects on Cotai Strip. This announcement came despite the strong revenue growth and profits posted by the casino operator for the first half of the year. Sands China, a subsidiary of major casino player Sands based in Las Vegas, is currently operating three facilities in the enclave administered by China. The three casinos posted a total of $1.98 billion in net revenue, which is an increase of 32 percent from last year, as well as $554.4 million worth of EBITDA.

This EBITDA figure is pegged at a 64.2 increase, and is said to be caused by the insistent focus of the company on gaming for high margins and the mass market. Meanwhile gross VIP taking is also increased by 59 percent from last year to this year, caused by an increase in rolling chip volume of 42 percent. The winning rate has also increased to 3 percent, a 0.3% increase from the same period of last year. With these figures, Sands China has been trying to speed up the construction of additional developments at lots 5 and 6 after securing a loan from its parent company, Las Vegas Sands, last May. The loan amounts to $1.75 billion. However, the company also expects the opening to be later than earlier announced. In May, the company projected for the first phase of the project to be completed in the first quarter of next year. However, the delays are causing the project launching to be moved three quarters behind, making the new launch on the fourth quarter of 2011.

The estimate though can still be moved further, as Sands China is now estimating that it will take at least a year and four months to complete just the first portion of the Cotai development, even if the major cause of delay, an insufficient labor force, will be given a solution for construction to be ramped up to a sufficient level. An analyst at CIMB, a Hong Kong-based consultancy, Tan Teng Yee, thinks that the fourth quarter 2011 launch projection by Sands China is still a bit optimistic. Realistically, he is betting on a first quarter of 2012 debut. Teng Yee adds that Sands China is still negotiating with authorities for the quota of foreign labor allowed to be increased so that construction progress in lots 5 and 6 can be sped up. The negotiation process has said to have stalled after the CEO of Sand China departed from Macau and the government remains unwavering in their stand regarding the labor quota. Two projects are currently being limited by the Macau government’s decision to limit the number of foreign workers working in these casino plans. Aside from Sands China’s, a competitor, Galaxy Entertainment Group’s plans to expand operations are also being hampered. Sands China estimates the labor requirement for construction ramp up to be up to 10,000, while only almost 1,000 workers are currently laboring on lots 5 and 6.

Sands China, in a statement, said that they are facing challenges in getting construction labor that they would require to hasten the pace of construction and realize their original goals, “due to matters beyond the company’s control.”. Only before the weekend, the board of China Sands increased the budget for both lots by as much as $100 million to update the spaces for the convention area and casino which has been gathering dust. Sands China also confirmed that it will utilize $500 million, which it will get from its own global offering (the company’s stocks has been offered in Hong Kong’s Stock Exchange since November of last year), to cover the remaining construction costs that still amounts to 2 billion Pounds. Meanwhile, Sands China’s already operational facility in Cotai, the Venetian Macau posted an increase in net casino revenue of up to $974.4 million, an increase of 23 percent from last year. The Plaza Macau, which is Sands Macau’s smallest casino in the Chinese enclave, posted income that tripled from last year to $222.1 million.