MGM China accepts land concession contract for Cotai

An initial down payment of USD56.4mn has been paid.

According to Nomura, MGM China confirmed in an announcement that it has formally accepted the Land Concession Contract for its Cotai project. The agreement involves a 25-year lease from formal gazetting.

Here's more from Nomura:

An initial down payment of USD56.4mn has been paid. The Cotai project will cost roughly USD2.5bn to complete and is expected to house 500 gaming tables and  2,500 slots (subject to approval) and 1,600 hotel rooms. MGM plans to finance the project via debt and internal means.

What’s next? Having accepted the Land Concession Contract, MGM has to wait for the publication of the Land Concession Contract in the Official Gazette of Macau (i.e., gazetting of the land) and to obtain the construction permit to officially kick start the project. Referencing Wynn Cotai’s approval timeline, we expect the gazetting of the land to happen in the next 6–9 months.

What is the valuation impact? Assuming a completion date of 2016 and USD2.5bn in capex commitment, the project would bring in HKD3/share value to our target price given 10x multiple at 18% RoIC. We currently have not given any value to the Cotai project in our target price.