Further Details On The Melco Resorts Project In Sri Lanka Revealed

Melco Resorts has committed $125 million investment towards the integrated resort project, known as “City of Dreams Sri Lanka.” This investment represents Melco’s contribution to the joint venture, with the remaining $900 million being provided by its local partner, John Keells Holdings.

The ownership structure of the project is structured such that Melco Resorts will be entitled to a significant portion of the earnings before interest, taxes, depreciation, and amortization (EBITDA) generated from the gaming operations. Specifically, Melco Resorts will receive 50% to 55% of the EBITDA from the casino, after paying John Keells Holdings their share. Additionally, Melco Resorts will be responsible for paying 30% to 40% in income tax on the remaining EBITDA.

Consistent with Melco’s global branding strategy, the Sri Lankan integrated resort will feature the “City of Dreams” brand, which has already been successfully implemented in Melco’s properties in Macau, the Philippines, and Cyprus.

Furthermore, Melco Resorts will be responsible for the management of the 113 hotel rooms under the Nüwa accommodation brand. The Nüwa brand is already well-established in Melco’s existing properties, allowing the company to leverage its operational expertise and deliver a consistent guest experience.

According to the latest updates, the City of Dreams Sri Lanka project is progressing steadily. The commercial space within the integrated resort has already been opened, and the majority of the hotel rooms are slated to become operational by October 2024. The highly anticipated casino component, however, is scheduled to open in mid-2025, following the completion of the fitting-out process, which is expected to commence this year.

Melco Resorts has identified Indian nationals as a key target market for the Sri Lankan casino project, drawing on the company’s experience in the neighbouring Singapore market. The rationale behind this strategy is the recognition that Indian citizens’ spending on casinos is generally lower compared to their Chinese counterparts, a trend also observed in Singapore’s casino duopoly.

Despite this potential challenge, Melco Resorts remains optimistic about the growth potential of the Sri Lankan market. The company’s “low capex” approach, combined with its focus on capturing the growing Indian wealth and outbound tourism, is expected to provide the necessary flexibility to adapt to the market’s evolving dynamics.

Melco Resorts has secured an independent 20-year gaming license for the Sri Lankan project, providing the company with a stable regulatory foundation to operate its casino.

According to the analysis provided by Morgan Stanley, the Sri Lankan integrated resort project is expected to generate significant cash flow for Melco Resorts. The investment bank estimates that the casino component alone needs to achieve a gross gaming revenue (GGR) of over $300 million to generate an EBITDA of $100 million.

Based on Melco Resorts’ 50% share of the EBITDA and the applicable 40% income tax rate, the company could potentially realize a cash flow of around $30 million from the casino operations. While Morgan Stanley expressed some scepticism about the achievability of the projected GGR, the analysts acknowledged that Melco Resorts’ “approach and low capex provides optionality to capture growing Indian wealth and outbound tourism.”