Cape Verde gov’t to reclaim assets from Macau Legend as concessions halt

The government of Cape Verde has officially terminated the contract with the subsidiary companies of Macau Legend Development Ltd (MLD) in the country last September following an idling on the development of the project of a casino resort at the Praia da Gamboa and Santa Maria Islet at Cidade da Praia.

According to an official letter from “Cabo Verde TradeInvest,” to which the Times had access, on September 7, 2023, the government entity responsible for foreign investments in the African country notified the MLD subsidiaries (MLD Cabo Verde Resorts S.A. and MLD Cabo Verde Entretenimento S.A.) of the unilateral decision to terminate the agreements with MLD due to their nonfulfillment of the contract for the development project.

In the letter signed by chairman and CEO of Cabo Verde TradeInvest (Investment and Export Promotion Agency of Cabo Verde islands), José Manuel Almada Dias, the agency said that, after several letters sent to the MLD regarding the monitoring and inspection of compliance of contractual obligations, the government entity was terminating the contract due to breach by MLD.

“More than four years since the signing of the draft Addendum to the Convention, and without even completing the first phase of the project, there are no doubts regarding the lack of interest from you in fulfilling the commitments and executing the contractual obligations resulting from the Convention, that is, to develop the investment project Macau Legend Development, in the Bay of Cidade da Praia, which includes the Santa Maria Islet and Praia da Gamboa, in Cape Verde,” the letter reads, noting that a previous letter, dated from January 18, 2023, on the same matter, was unanswered by the concessionaire.

“Your excellency’s negligent stance is reflected and acknowledged in your letter from October 24, 2022, in which you intended to justify the contractual delays with the negative impacts caused by both the Covid-19 pandemic and the war in Ukraine, which is neither accepted nor acceptable,” the letter continues, adding, “Until now you are yet to present a proposal for the project’s execution and completion schedule, including all its phases, nor a demonstration of the respective financial capacity, as you had promised and despite the successive insistences of the State of Cape Verde and the deadlines set for presenting the [mentioned documents]. The last deadline extension had been granted in the letter of January 18, 2023, to which we have not received any response.”

Dias also noted in the letter dated September 7, 2023, that “since it is not possible to reach an amicable and negotiated resolution, and it is not in the interest of the State of Cape Verde to maintain the situation of non-execution of this project, given the contractual non-compliance with the objectives and deadlines set out in the Convention, there is no alternative left to the State of Cape Verde other than the termination of the agreement.”

The letter concludes with a reference to the intentions of the government of Cape Verde in seeking the “payment of compensation for the damages suffered, which will be indicated in due course,” reaffirming that, “in case you do not pay this compensation, the State of Cape Verde has no alternative other than to resort to the legal channels at its disposal to claim the amount of compensation that will be set.”

Confirming vs confusing statements

In early October 2023, the Chairman, CEO, and Executive Director, of MLD, Li Chu Kwan in an interview with the Hong Kong broadcaster TVB, admitted that the company would abandon their development projects in Cambodia and Cape Verde until 2025.

Li justified the decision with several issues in implementing such projects and with a new direction for the company that would exclusively focus on Macau and developing non-gaming businesses to reduce their dependency on gaming.

Such a statement comes in line with the letter from Cabo Verde TradeInvest that one month earlier, had unilaterally terminated the contracts with MLD due to breach, namely on the development of the project that started in 2016 that should have been concluded by February 2021 and progress on which had been paused for a long period.

In line with such events, Cape Verde’s Premier, Ulisses Correia e Silva, also at the start of October 2023, announced that the government of Cape Verde would reverse the concession of the project for the hotel-casino after the abandonment of the project by MLD.

He also added that after that, the government would look for a solution for the investment.

“First, we have to reverse the concession. This is an operation and investment concession. There had been indications for some time that there would be problems on the investor’s side, on their ability to complete the project,” Correia e Silva said to the media in Cape Verde.

“Now we are working on legal support to terminate the concession and then see how the investment can be repurposed, as it cannot remain as it is [unfinished],” he added in an interview on the sidelines of the opening of the new academic year at the University of Cape Verde.

Correia e Silva also added that the government would reclaim the site that had been occupied under the concession regime and create conditions for new projects to emerge on the site.

Unexpectedly, in early May this year, Cape Verde’s Deputy Prime Minister and Minister of Finance, Business Promotion and Digital Economy, Olavo Correia confirmed in an interview with the local broadcaster RTC that the government of Cape Verde had the intention to revoke the license of MLD and that negotiations between both parties were underway to reach an amicable agreement that would be potentially concluded within two months, or by early July this year.

Although confirming the unfulfillment of the contractual obligations by MLD, Correia said that the government was still looking for an amicable solution while noting that they were also seeking new investors for the casino resort project and had received some interest from other parties.

The same official added that Cape Verde government aims to find a new partner capable of providing the guarantees MLD failed to deliver, particularly on financial, management, and project execution to avoid further delays.

The Times has contacted both the MLD and the government officials of Cape Verde to clarify the current status and position of the government regarding the termination of the contract but, until press time, the Times had not received any response from these entities.

Assets of the concession

Although the concession granted by the government of Cape Verde to the MLD is divided into two different parts (one, a land concession and two, a gaming operation concession), since there are no assets from the second, as the construction of the casino was never concluded and it is far from being potentially operational, the matter of the assets seems to be restricted to the first part, that is, the buildings, foundations, machinery, and others that MLD might have left in Cape Verde.

Since, as far as the Times could investigate, the MLD has not appealed the decision from September 7, 2023, of Cabo Verde TradeInvest of terminating the agreements, which include the concessions, all rights from MLD seem to have also ceased with this termination with the Cape Verde government to be able to proceed with a reclaiming of the site (without all the assets that are currently on it).

This fact can be also deduced in the words of Premier Correia e Silva when in October 2023 he noted that the government was working on reversing the concession and finding a solution to give to the site with a different partner, that is, assuming that the Cape Verde government would take immediate possession over the assets on the site as the contracts indicate and without a need to negotiate them with MLD.

These assets were lastly evaluated by the MLD in their Annual Report in 2021 as worth only some HKD35 million with the group assuming that part of the losses for the year ended 31 December 2021 was due to the “impairment losses recognized for the overseas projects located in Cape Verde due to the adverse changes in economic situation under Covid-19 pandemic.”

In the same report, the MLD also noted that during the year the group had “an impairment loss of HKD241 million (2020: HKD79,020,000) recognized on the investment project in Cape Verde.”

In the same year, the MLD noted in the chapter specifically dedicated to the investment project in Cape Verde that besides the impairment loss referred to earlier, the project was “recorded for the excess of the carrying value over the estimated recoverable amount of HKD35,000,000 (2020: HKD282,000,000), which was determined to be the fair value less costs of disposal of the CGU [Cash Generating Unit] to which the assets have been allocated for the investment project in Cape Verde. The estimated fair value of the CGU in Cape Verde was determined using level 3 inputs based on the current cost of replacing the assets less deduction for physical deterioration and all relevant forms of obsolescence and optimization.”

In 2022, in the same Annual Report, the company stopped having a chapter dedicated to the Cape Verde project and replaced it with a note on the “Impairment Losses on Non-Financial Assets” section which recapped the previous losses, adding, “No impairment was recorded for the year ended 31 December 2022**,” that is, acknowledging that the assets in Cape Verde have kept the same value as evaluated at the end of 2021, that is, HKD35 million.

In the 2022 report is also noted that a sum of approximately HKD12,677,000 (same as in 2021) for a gaming concession with a term of 25 years would be due “from the first day of operation of the casino operated by the Group under the project in Cape Verde,**” which never happened.

On April 24, this year, in the MLD Annual Report (referring to the year ending on 31 December 2023) there is no reference to the Cape Verde development project, further losses related to the assets in the country, or even an acknowledgment of no impairment regarding the same assets (like occurred in the 2022 report).

On the topic, the Times reached the Hong Kong Exchanges and Clearing Limited (HKEX) to understand the reasons for such an omission or if there was any other filing to the HKEX that would justify the non-report on the matter.

Acknowledging the inquiry, Henry Sung, assistant vice president for Corporate Communications said that “HKEX does not comment on individual cases.”