Western Banks Invest Heavily in Macau Casino Projects

Western financial institutions, including many American banks, are tripping over one another for the opportunity to invest in Asia's relatively young and newly booming casino industry.

The brightest star in Asia's rapidly growing casino business is Macau, a tiny city- state that was once a Portuguese colony but now belongs to China. This small Chinese "special administrative region," the only place in China in which casino- related activities are legal, is poised to surpass even the reigning king of casino cities, Las Vegas, in the next few years. From 2002 to 2004, the casino revenue in Macau rose a remarkable 85 percent to $5.1 billion- a petty $200 million under Las Vegas' casino revenue.

The success of the city- state's casino industry can be attributed largely to a lucky geographical location. Macau is attached to what is known as the Chinese "mainland." Its proximity to this great body of gamblers, whose collective urban income has of late increased at an extremely fast clip, almost doubling in the past five years, is Macau's secret for success.

Macau's casino business is as grand and large- scale as any. The Las Vegas Sands opened the $265 million Sands Macau in 2004, which turned a 100% profit on its investment in its first year. Steve Wynn, the Las Vegas casino tycoon, also owns a casino in Macau.

Western, and particular American, banks are waiting in line to finance Macau's casino industry. In April, the Bank of America signed off on a $1.1 billion loan to a project by Wynn Resorts. The Bank of America had lent approximately $4.5 billion to the casino industry in Macau and elsewhere.

Goldman Sachs and Deutsche Bank are also extremely involved in lending money for Macau projects. PricewaterhouseCoopers employs a full- time Macau- based casino investment specialist, David Green.

"It's a demographic game," Green said. "Any country that borders on China is bound to do pretty well with their gambling industry."

Richard Weissmann, a Goldman Sachs managing director, is in charge of dealing with casino industry investments. Of Macau and other Asian casino investment opportunities, Weissmann said, "The concentration of population in these areas, together with their popularity as tourist destinations, would offer unprecedented casino development opportunities. Given the significant investment required to build new properties, the financing opportunity is significant."

The Macau casino market, as rosy as the picture may seem, is not without its potential dangerous. Investors must brave money laundering and the political and economic dominance of local billionaire and casino tycoon Stanely Ho. Regardless, the numbers clearly show that the banks are well willing to contend with these risks, and their investments are expected to grow exponentially in the coming years.