The survival of the $9.1 billion CityCenter development was called into question Monday when the investment arm of the Persian Gulf state of Dubai sued MGM Mirage over concerns about the project’s viability.
According to the lawsuit filed in Delaware Chancery Court, Dubai World, a 50-50 joint venture partner in CityCenter, is asking for unspecified damages and wants to be relieved of its obligations under the companies’ agreement that was struck in August 2007.
Dubai World, which is financing its portion of CityCenter through its Infinity World subsidiary, contends that recent statements by MGM Mirage constitute a breach of the joint-venture pact and has put the project at risk.
A spokesman for MGM Mirage was unavailable for comment this morning. As of noon PDT, MGM Mirage had not issued a statement about the legal action.
The lawsuit seemingly took MGM Mirage by surprise. Last week, during the company’s fourth-quarter earnings conference call, MGM Mirage Chairman and CEO Jim Murren was asked about the relationship with Dubai World. “Our relationship with Dubai World is outstanding and has been since August of ’07 when we consummated the joint venture,” Murren said. “They have been steadfast partners.”
Murren said Dubai World officials recently visited Las Vegas and the CityCenter development.
“They left with great awe and pride in CityCenter,” Murren said. “And they realize, as do we, that this is a tough time that we’re all in ... and they have been great to work with and I’m very proud of the relationship that we have with them, and I’m glad that we have them.”
In November, Nevada gaming regulators gave Dubai World approval to increase its stake in MGM Mirage to up to 20 percent. Dubai World had filed a licensing application with state gaming authorities so the entity could share in gaming revenues produced at CityCenter.
In its lawsuit Dubai World blamed MGM Mirage, which is the managing partner of the joint venture, with mismanagement of the project and causing large cost-overruns despite some portions of the project having been scaled back. When the joint venture was announced, CityCenter had a budget of almost $7.5 billion, according to the lawsuit.
Also, MGM Mirage anticipating raising about $5 billion in financing, which was revised to $3 billion. Ultimately, the company has raised just $1.8 billion. Dubai World said its subsidiary has made capital contributions of approximately $4.3 billion to CityCenter and is committed to another $1.1 billion.
“Considering the decrease in scope of certain aspects of the project, (Dubai World) is being asked to pay significantly more for a project that is considerably less than it bargained for,” according to the lawsuit.
George Dalton, the group general counsel for Dubai World, told reporters on a brief conference call in Dubai that the lawsuit was “a very regrettable step.” He said the state-owned company “actually had no choice. What we are attempting to do is complete this project.”
In 2007, Dubai World spent almost $6 billion to own a 50 percent stake in the development and to control about 9.5 percent of MGM Mirage shares. Dubai World paid $80 a share for its interest in MGM Mirage, but the company’s stock price has fallen dramatically. Shares of MGM Mirage were trading up this morning until news of the lawsuit crossed the wire. Shares are currently being traded for under $3 a share.
Asked whether Dubai was effectively seeking to end its joint venture with MGM Mirage, Dalton said: “It’s difficult to say at this point.”
“We’re not saying MGM won’t be involved,” Dalton said. “We’re anxious to work with them, but we need to see them come out of their financial problems.”
Dalton cited concerns about a statement in MGM Mirage’s recent annual report warning of a possible default on CityCenter that could in turn force it or the project to seek bankruptcy court protection.
He also questioned the two-month waiver MGM Mirage received from its lenders last week to avoid violating its loan covenants. Analysts believe MGM Mirage may have to file Chapter 11 bankruptcy to restructure $13.5 billion in debt. In a Securities and Exchange Commission filing, MGM Mirage said there is “no certainty” the casino operator can continue to operate that long.
“Our concern is for the long term health of the project,” he said. “We want to see some certainty (from MGM) before we continue with our obligations.”
CityCenter includes six high-rise towers with a casino, boutique hotels, condominiums, entertainment and a retail mall. MGM Mirage has touted the project as the most expensive private commercial development in U.S. history.
MGM Mirage said last month that CityCenter would open in stages, starting in October with Vdara, a nongaming condominium and hotel tower. Aria, CityCenter’s centerpiece 4,004-room hotel-casino, is scheduled to open Dec. 16.
The Associated Press contributed to this report.
Contact reporter Howard Stutz at firstname.lastname@example.org or 702-477-3871.