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City of Dreams Sri Lanka casino pre-opening costs exceed Rs 1.9b
View(s):By Kapila Bandara
Pre-opening costs of the John Keells Holdings’ multi-billion rupee integrated resort, City of Dreams Sri Lanka, which includes a casino operated by Macau’s Melco Resorts & Entertainment, have risen to Rs 1.95 billion, the company reported in its interim financial filings this week.
The costs are weighing on operating profitability, the second quarter of the financial year 2024-2025, review shows. JKH said the costs related to Cinnamon Life hotel and City of Dreams Sri Lanka (casino, mall, Nüwa brand ultra high-end luxury hotel rooms, office space, conference facilities, apartments etc) are “substantial’’.
John Keells Holdings raised Rs.24.02b in a rights issue in July to fund the project, at a time when financing costs increased due to increasing equity funding needs.
The project is funded through a mix of equity, sales of apartments and commercial complex, and debt.
Pre-opening costs of Cinnamon Life weighed on the financial performance of the JKH leisure business unit as well.
City of Dreams Sri Lanka has been evolving for more than a decade now. The Melco casino is expected to open in mid-2025. In mid-October, JKH opened the ‘Cinnamon Life’ hotel, restaurants and banquet facilities.
Melco is headed by billionaire Lawrence Ho Yau-lung and it owns and operates several standout casinos in tiny Macau island, once a Portuguese colony for 400 years.
Lawrence Ho’s late father Stanley Ho Hung-sun, a polite, sociable man, was a towering figure in Macau’s casino business. He also operated helicopters and high-speed ferries to Macau from Hong Kong. The famous Lisboa casino with its risqué cabaret Crazy Paris Show, a close imitation of Crazy Horse Show in Paris, was once the world’s highest grossing casino.
Stanley Ho died in Hong Kong in 2020, aged 98 years. He had lived to see Macau become the world’s largest gambling centre. When he retired in 2018, his personal wealth was estimated US$6.4b, more than US$1.5b greater than Sri Lanka’s meagre forex reserves.
Hong Kong-listed Melco International Development controls Nasdaq-traded Melco Resorts & Entertainment. Melco Resorts has invested US$125m (Rs 36.58b) in City of Dreams Sri Lanka. It has a 20-year lease for the casino and got a 20-year license from the previous government.
Melco Resorts reported this week that capital expenditures for the third quarter of 2024 were US$64.6 million. This includes costs related to the City of Dreams Sri Lanka, as well as improvements at City of Dreams in Macau and Studio City.
John Keells Holdings reported this week that pre-opening costs of City of Dreams Sri Lanka are Rs 1.18b in the second quarter of the 2024-2025 financial year. For the six months ended September 30, costs have risen to Rs 1.95b.
Group revenue in the quarter ended September increased by 20% on-year to Rs.76.96b. Quarterly operating profit dropped by 4% on-year to Rs.8.42b.
For the six months ended September, JKH earnings dropped by 5% to Rs 556.09m from the year before.
Among Melco’s integrated resorts with casinos in Macau are, the stunning 38-storey Altira Macau (five Michelin star restaurants), and City of Dreams. Melco also is majority owner and operator of Studio City. In Manila, a subsidiary operates and manages City of Dreams Manila and in Europe, Melco operates City of Dreams Mediterranean in Limassol, Cyprus.
This week Melco Resorts & Entertainment reported net income of US$27.3m for the third quarter, versus a US$16.3m net loss in the third quarter of 2023.
Total operating revenues increased by 16% on-year to US$1.18b.
At City of Dreams, rolling chip volume dropped to US$3.30b for the third quarter of 2024 versus US$4.43b in the year before.
In July, John Keells Holdings carried out a rights issue of 150.2 million ordinary shares at Rs 160 per share, generating Rs 24.04 billion for subsidiary Waterfront Properties (Private) Limited, the developer of the City of Dreams Sri Lanka.
The funding of equity into WPL has led to higher leverage at the company. Further funding of US$90-US$100m (about Rs.27-Rs 30 billion) is needed, the company has said earlier.
Fairfax Financial Holdings subsidiary HWIC Asia Fund, is the largest shareholder of JKH with a 19.4% interest. Asian Development Bank has a 4.3% interest.
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