Inside Asian Gaming

April 2008 | INSIDE ASIAN GAMING 31 Cover Story HongKong-listed Star Cruises ,the leisureoperator that runs casino ships from a ferry terminal at Tsim Sha Tsui in Kowloon out into the South China Sea, is reported to have a preliminary agreement with Travelers International, a subsidiary of Philippines-listed real estate conglomerate Alliance Global Group Inc. , to take a 40% stake in Travelers’ portion of the Manila Bay project. Star Cruises is also reported to have made a preliminary agreement with Travelers International to invest US$335 million in Newport City, a mixed use residential development near the Manila Bay site. The day after the first wave of partnership announcements, the local developer and financial services conglomerate SM Investments Corp. ,told the Philippine Stock Exchange it planned to take part in Manila Bay by building a gaming venue and hotel. Its partner is expected to be Asia-Pacific Gaming of Australia,and the hotel manager is likely to be Radisson Hotels & Resorts . SM Investments was the developer on the nearby Mall of Asia—one of the world’s biggest retail complexes. An Australian company called Bloombery Investments Ltd has been named in local media reports as planning three luxury hotels with a total capacity of 1,500 rooms, high-end retail shops, celebrity-themed dining, and a major entertainment and sports centre. Australian businessman James Packer , who recently split up Publishing & Broadcasting Ltd, the company he inherited from his father, into two distinct parts—Crown Casinos and Consolidated Media Holdings—has also been linked in press reports with Manila Bay. Mr Packer was listed as a conference participant in the Asia’s GEM handbook, but did not attend. Mr Packer’s business partner in Macau, Lawrence Ho , the co-chairman of their joint venture Melco PBL Entertainment,did attend the second day of Asia’s GEM, though there’s no indication at this stage that their company will be directly involved in Manila Bay. up, ownership of the site could be transferred to another entity such as a financial services company with different rules on foreign ownership. For instance, Section 6 (vi) of the country’s Financing Company Act of 1998 states: “Financing companies shall be organized in the form of stock corporations at least forty percent (40%) of the voting stock of which is owned by citizens of the Philippines…” Equity If a financing company held the stake in the venture, the equity ratios are boosted to as much as 40:60 in favour of foreign owners, provided the institution is regulated by the Securities and Exchange Commission of The Philippines. One of the proposed partners in Manila Bay, Philippines-based real estate developer Megaworld Corporation, is indeed regulated by the Philippine Stock Exchange and according to its website is 49.36% owned by the domestic conglomerate Alliance Global Group Inc, and 50.64% owned by public shareholders. Another of the proposed partners is SM Investments Corp., also publicly listed and one of The Philippines’ biggest conglomerates, occupying an important position in the development and management of shopping malls, retail merchandising, banking, finance and property. In theory, either of these companies could hold the real estate portion of the project and issue shares to foreign investors to compensate the foreign investors for an injection of development capital. Export-driven It gets better. If the Manila Bay venture exports at least 60% of its output, then the Foreign Investments Act of 1991 allows for complete foreign ownership. For the purposes of Philippine law, ‘export’ industries include tourism. Section 2 of the statute says: “As a general rule, there are no restrictions on extent of foreign ownership of export enterprises.” Crucially, Section 3 (e) of the Act specifically includes tourism in the definition of exports. It states: “The term ‘export enterprise’ shall mean an enterprise wherein a manufacturer, processor or service [including tourism] enterprise exports sixty percent (60%) or more of its output, or wherein a trader purchases products domestically and exports sixty per cent (60%) or more of such purchases…” Threshold In other words, if Manila Bay derives 60% or more of its revenues from foreign visitors, then it can be 100% foreign owned. Pagcor executives told IAG that VIPs and junkets combined currently account for about 40% of Pagcor gaming revenues.So if Manila Bay can pull in overseas VIP gamblers and tourist shoppers then it should be able to achieve the 60% export threshold. This may effectively make redundant one important passage from Pagcor’s terms of reference where the document states: “Project proponents, who will own the land on which the project is sited, will be subject to the 60/40 Filipino citizenship requirement. Applicants who will not own the land but who propose to operate on leased land owned by PAGCOR in the Bagong Nayong Pilipino Manila Bay Integrated City project may be 100% foreign owned.”