Meclo Crown Entertainment Limited Harvard Case Solution & Analysis

Introduction:

            Brain Masterson is a CFO of Meclo Crown Entertainment Limited (MCEL), he is asked to provide his suggestions about the short-term and long turn funding requirements of the company. MECL is a casino that is situated in Macau. The company is under development of two more gaming resorts in MECL, the development has stopped due to shortage of finance and funds availability. The company requires $1.6 billion to complete the construction of these two gaming resorts but only the least amount is needed to start development. However, the funds are needed to complete the construction of the resort and to run the report the working capital is also required. The fund raising plan must take place very soon with a view to complete the construction and run those two resorts. The funding need must meet both short-term and long term needs, therefore the proposal must be based upon undertaking both needs. The quick development is required because, now Macau has overtaken Los Vegas in the gaming reports, therefore the quick development can inflow resources to the company very soon.

In Macau, STDM is the largest group of casinos in Macau. In Macau, the license is required from Government to open a casino, the casino business is also a good ax generating division of the government therefore this business is motivated to open in Macau.

In 2002, the monopoly of STDM came to an end and 21 bids were offered by many of them public listed companies and winners of those bids were three privately owned companies namely; SJM, Galaxy Casinos and Wynn Resort. To welcome other the government offered rights to open the casinos in Macau to increase the revenue of the government and create a gaming zone in Macau.

In 2006, Macau is the fastest growing gaming zone in the world and in 2005 it generated revenue of $5.7 billion and $4.9 billion in first 9 months of 2006.

MECL is a joint venture of Melco and PBL with an equal sharing ratio. The partnership has started 2004 with a view to develop casinos and gaming resorts. Melco is an established business that is operating resorts and casinos and Macau and Hong Kong. PBL has a television business in Australia and the joint venture is created with a view to earn profitability through investment in a growing industry.

Analysis:

            The analysis is about the opportunities and problems encountered by MECL, the funding requirements of MECL for short-term and long-term and the alternatives to raise the funds for expansion plan.

Put yourself in the position of Brian Masterson: In preparation for the impending Board meeting, provide a detailed analysis of the opportunities and the problems encountered by MCEL so far;

            Through detailed analysis and research that have been conducted over the local and international stock markets, bond markets and private equity market to get the appropriate source of financing and the appropriate time period. The Hong Kong stock market requires only local required reporting and corporate governance requirements that are easy for the company and cost effective as compared to those requirements under US stock market that costs around $200,000 to $400,000 per annum for reporting purpose. The stock market of US and Hong Kong both are growing so any of the markets to choose can give positive outcome for acceptance of IPOs. It is a viable option to invest in the local stock market rather than going forward for international financing (Exhibit 3 and 5).

Meclo Crown Entertainment Limited Case Solution

            The debt financing through the mean of corporate bonds is another good source of financing, the debt financing is cheap in the local market and the market has enough capability to absorb the amount of debt raised by MCEL. The required return of 10 years corporate bonds in the Hong Kong bonds market is 3.73% and the same tenure, US corporate bonds have a required return of 5.4% per annum. The yield of local corporate bonds is more attractive than US, but it has option to raise from both the markets because both markets are growing (Exhibit 4 and 6). The company must try to raise the whole amount through local markets and if it cannot raise the whole amount then the US corporate bond market should be considered to raise the remaining finance.................

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