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Waiting for Garapan

Sunday, 29 July 2018 22:27
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Imperial Pacific says it will miss another deadline for completing its Saipan casino hotel, and there’s no consensus on a completion date. Meanwhile, VIP roll and trade receivable numbers soar.

By Muhammad Cohen

 

Imperial Pacific International continues to excel at manythings. Its monopoly casino on the US Pacific island of  Saipan keeps posting extraordinary VIP numbers, more than three times the roll at Wynn Macau on a speck in the ocean, four hours from anywhere but Guam. Created to ease a government money crunch, the casino paid taxes and fees of US$127 million last year, equivalent to 54% of the Commonwealth of Northern Marianas Islands fiscal 2018 budget.

The opening of the casino, starting in a shopping mall in July 2015, helped visitor arrivals grow by 40% over the past three years, topping 600,000 last year for the first time since 1997, and IPI haspromised total investment of US$7.1 billion, including a world class  integrated resort. What Imperial Pacific hasn’t proven very good at is collecting debts from its players and completing its casino hotel in Garapan, Saipan’s tourist and business hub.

“It is not clear to me that Imperial Pacific’s business plan and efforts to date will lead to profitability over the long term,” Spectrum Gaming Group Managing Director Frederic Gushin, a former CNMI gaming adviser, says. “The difficulties that Imperial Pacific has had in completing the first project in Garapan raise serious questions about the company and their ability not only to complete the first casino but also the major IR project.” Meanwhile, IPI uses villas, yachts and other hotels to house guests. Saipan tourism stakeholders cite lack of accommodations as the key constraint to tourism growth.

In an interview with Inside Asian Gaming published in April 2016, Mark Brown, then president and CEO of IPI’s Best Sunshine International Saipan unit, said the 350 room luxury beachfront hotel’s casino would open in December of that year with a “full building opening” in April 2017, well ahead of the casino license’s August opening deadline. Then came Typhoon Saudelor, failed financing efforts, cement shortages, construction worker injuries and a death on the building site, allegations of illegal labor imports from China, a change in contractor and Brown’s resignation to take a non-executive chairman post, which he resigned earlier this year.

 

NEW GAME IN TOWN

As the deadline approached, the Commonwealth Casino Commission granted IPI permission to move from its 48 table, 150 machine temporary home in a shopping mall into the new site’s casino even though the hotel was not complete. Gaming relocated on 6 July last year and is currently running with approximately 70 tables and 240 gaming machines, plus a Chinese restaurant and two bars, according to IPI. When completed, the casino will have capacity for 193 tables and 365 slots.

Last July, the Commonwealth Casino Commission granted IPI a one year extension. The revised casino license agreement requires IPI to deliver by 31 August this year, at a minimum, a 329 room four or five star hotel, 14,140 square meters (152,146 square feet) of gaming area, 3,870 square meters of food and beverage outlets, retail, meeting and spa/fitness areas, plus 15 villas. The revision also extends the deadline for development of IPI’s integrated resort that makes up the bulk of its promised US$7.1 billion investment to 2023 for Phase One and 2028 for Phase Two. Required IR components include 800 and 875 room luxury hotels, a US$100 million theme park, a theater, substantial retail and meeting elements, plus 185 villas.

Since March, IPI has been saying it won’t finish the hotel by August but has been slow to formally request another extension to the casino license agreement. At the Casino Commission’s June meeting, IPI Vice President for Construction Eric Poon said IPI hopes to have the hotel completed “by the end of the year,” though sources tell Inside Asian Gaming completion could take 18 months. Commission officials have repeatedly asked IPI to apply for an extension and avoid any need to “sanction” the company. Commission Chairman Juan Sablan urged IPI to request a realistic completion date. The Casino Commission and the office of CNMI Governor Ralph Torres did not respond to questions for this article.

 

WE GOT THIS, MOSTLY

In a May interview at the Japan Gaming Congress, which IPI attended to market to Japanese customers and explore Japan IR partnership opportunities, Senior Vice President, Operations Control and Improvement Lu Tsai said a US licensed contractor had taken over the hotel project, was in compliance with US law and had “over 1,000” construction workers on site.

“Funding is absolutely not an issue,” Lu, a former executive with Macau junket Meg-Star, Melco Crown, Galaxy Entertainment and Vietnam’s The Grand Ho Tram Strip, said. Other sources say IPI still aims to raise funds for the hotel, initially projected to cost US$600 million. There’s no updated cost estimate.

“This project has been difficult but no different than other gaming projects in unique locations,” Imperial Pacific Saipan’s architect and designer Paul Steelman says. He emphasizes, “This is a first-time casino developer looking for perfection. As we all know, this can be difficult.”

What seemingly remains easy are huge VIP rolls, juiced by the move to the larger casino. Overall gross gaming revenue grew 75%  last year to HK$13.1 billion (US$1.7 billion). VIP revenue grew 79% to HK$12.7 billion on roll of HK$385.9 billion, as the average VIP table count grew to 23 from 16 at the temporary casino. That’s average daily roll per table of HK$46 million and daily win of HK$1.5 million. For comparison, Wynn Macau’s casino in the heart of the Macau peninsula reported average daily roll per table of HK$13 million and daily win of HK$426,380.

 

DO IT YOURSELF

IPI’s revenue comes without junkets promoters. The Casino Commission is reportedly considering applications from multiple junkets to do business in CNMI but none have been approved to date. IPI filings show commission payments of HK$5 billion, equal to 1.3% of VIP roll. That beats Macau’s 1.25% limit and is especially attractive if it’s going directly to the VIP rather than being split with a promoter.

In place of junkets, IPI relies on executives’ roots in the Macau junket industry, most notably Executive Director Cai Lingli, once the listed owner of junket Heng Sheng’s Macau branch, and Project Director Ji Xiaobo, a former Heng Sheng executive, Cai’s nephew and majority owner Cui Li Jie’s son.

Cui holds shares and options equivalent to 65% of IPI’s outstanding shares. Ji has been called the “mastermind” of the Saipan project, is paid an annual salary of US$1 million with a bonus of up to US$2 million and has lent IPI HK$400 million through a convertible bond arrangement that entitles him to a 90% share of the company if exercised. “Imperial Pacific Saipan might have more equity in it than any other Asian casino complex,” Steelman notes. “The owner has a lot to lose.”

The flip side of those otherworldly VIP numbers remains unpaid player debt. IPI’s reports show outstanding receivables totalling  K$13.3 billion at the end of 2017, up from HK$5.9 billion a year earlier. IPI’s HK$7.4 billion receivables increase represents 58% of2017 VIP revenue and nearly 12 times IPI’s reported operating profit of HK$637 million. For comparison, corporate Wynn Macau reported  HK$575 million in receivables on VIP revenue of HK$26.5 billion, 2% of VIP revenue and 11% of its operating profit.

IPI characterizes HK$4.7 billion of its debt as impaired, 35% of the total. For 2016, IPI wrote off HK$300 million, so its total unpaid lending to players since it began VIP operations in November 2015 is HK$13.6 billion. That’s 64% of IPI’s combined GGR of HK$21.3 billion for those three years and more than eight times its combined operating profit of HK$1.6 billion. Marianas Variety newspaper reported in June that IPI filed a lawsuit against a Chinese VIP for an unpaid debt of US$5 million, 0.3% of IPI’s outstanding total. That seems like trying to empty a swimming pool with a teaspoon.

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