April 28, 2013 4:05 pm

Macau: betting on Louis XIII

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The real profits will come from gaming

In America’s gilded age, its robber barons built European-style mansions and splurged on luxuries. China’s ascent has remarkable similarities. On that basis, a new Louis XIII-style hotel and casino in Macau, overseen by a Bourbon princess and aimed at the ultra-wealthy sounds a winner. But can the odds be that good?

Louis XIII Holdings, formerly Paul Y Engineering, a Hong Kong-listed building contractor, this week broke ground on what it says will be the world’s most expensive hotel, asking twice the rate ($130,000) for its top suite, per square foot, of Las Vegas’s best. Add in invite-only couture shopping and publicity is sorted, but what about the business? Like anything else in the former Portuguese colony, Louis XIII’s real profits will come from gaming. Its focus on mass premium gaming, not the VIPs implied by its rack rates or shops, should hit a sweet spot: VIPs expect costly credit, but better-off mass players pay cash and still bet big.

For now, betting on Louis XIII remains high-risk. There is Beijing’s crackdown on corruption and ostentation to worry about, although markets have shrugged this aside. Each of the six big Macau operators have gained at least a 10th this year against a flat performance by the Hang Seng. But Louis XIII is still far from being operational: the property is not due to open until late 2015. Perhaps owning its construction firm, courtesy of its former existence, will help keep the project on schedule. After all, building is not an unusual route to Macau’s riches: anyone who bet on K Wah Construction when it acquired its casino licence has since enjoyed a 20 per cent compound annual gain in what is Galaxy Entertainment. Still, until further progress is made, Bourbon princesses and eyebrow-raising room rates make for good headlines, not investments. Just like a night in Macau, this is no gamble for the faint-hearted.

Email the Lex team in confidence at lex@ft.com

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