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Infinity takes MGM to court over Vegas project

Bradley Hope

  • Last Updated: March 23. 2009 9:51PM UAE / March 23. 2009 5:51PM GMT

MGM Grand Hotel / Casino in Las Vegas, Nevada. Las Vegas' largest casino operator MGM Mirage, parent of the New York-New York and MGM Grand, might face bankruptcy filings, and is being sued after an alleged breach of a joint venture agreement. Ethan Miller / Getty Images

Infinity World, a subsidiary of Dubai World, says it has taken legal action against MGM Mirage after the company allegedly committed a “breach” of its joint venture agreement to build a major project on the Las Vegas strip.

The company is asking a Delaware court to relieve it of any obligations under the agreement after MGM stated in its financial filings on March 17 that “there is substantial doubt about our ability to continue as a going concern”. MGM also said it “cannot provide assurance” that it could generate enough cash flow to pay for its share of the project.

The two companies had agreed to build a 31-hectare project in Las Vegas called CityCenter, which is described as the largest casino project in history. The US$8.6 billion (Dh31.58bn) project includes plans for several casinos, hotels, a retail strip and other office and residential buildings. Infinity World contributed $4.3bn to the project and owns 50 per cent of it, Dubai World said.

“The current path of the project is simply unsustainable given our partner’s financial troubles,” Dubai World said today, adding that it had been left with “no other option but to act to protect its investment and the future of CityCenter”.

Dubai World also alleged that MGM had “mismanaged” CityCenter, causing higher costs despite reducing the scope of the project.

Today, MGM responded to the allegation. "The lawsuit filed yesterday by a subsidiary of Dubai World is completely without merit," said Alan Feldman, a spokesman for MGM Mirage.

"Dubai World is well aware of our written commitment to meet our funding obligations and that MGM MIRAGE has available cash to satisfy those obligations.

"MGM MIRAGE is ready, willing and able to fund its share of the costs to complete CityCenter, including a required payment this week."

"We look forward to working with Dubai World to resolve any outstanding issues and complete this landmark project," he said."

The firm’s chief executive, Jim Murren, told investors last week that he believed the company would succeed despite the challenges it faced. The company was granted a waiver by its lenders until May 15 to restructure at least $7bn of $13.5bn in long-term debt.

“I have no illusions that this is going to be easy,” he said, according to the Associated Press. “I do not at all harbour any ill feelings towards people who think we will fail, because this is not without risk. But I wake up thinking that we’re going to make progress every day.”

The company is being hit by a combination of lower land and property values, less gambling, and declining room rates during the worst US recession in decades.
Indications that MGM was having difficulty with the CityCenter project first emerged in January, when local inspectors found faults in the construction quality of some of the buildings. The company modified parts of the project to cut costs, but it still needs about $1.2bn to finish the project.

Dubai World said it was working with lenders and MGM to ensure the project could still be completed by its deadline of late this year.

The two companies had partnered to build a 31-hectare project in Las Vegas called CityCenter. The US$8.6billion (Dh31.5bn) project includes plans for several casinos, hotels, a new retail strip and other office and residential buildings. Infinity World contributed US$4.3bn to the project and owns 50 per cent of it, officials said.

“The current path of the project is simply unsustainable given our partner’s financial troubles,” Dubai World said, adding that it had been left with “no other option but to act to protect its investment and the future of CityCenter”.

Dubai World also alleged that MGM had “mismanaged” CityCenter, causing higher costs despite reducing the scope of the project. The budget rose to $8.8bn from $7.488bn in 2007, Dubai World said.

The company said it was working with lenders and MGM to ensure the project could still be completed on time by its deadline of late 2009.

A MGM spokesperson could not immediately be reached for comment.

bhope@thenational.ae

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