IAG FEBRUARY 2017 web - page 11

February2017
inside
asiangaming
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DOWNGRADED
FitchRatings andMoody’s Investor Services rated these prospective
bondsbelow investmentgrade.Each ratingsagencyalsodowngraded
IPI’s overall creditworthiness, in part due to its difficulties finishing
the casinohotel, limiting cashflow and threatening cost overruns as
theopeningdate, nowMarch, is delayed.
“Operating cash generation is likely to be low, despite strong
revenue growth,” Fitch wrote. In other words, for all its gaudy VIP
numbers, IPI isn’tmakingmuchmoney. InAugust, IPI tookaHK$492
million (US$63million) loan from its controlling shareholder.
Fitch cited concerns over IPI’s reliance on the “volatile” VIP
segment that’s lowmargin, reliant on junkets and “subject to policy
uncertainty.” Itsreportspecificallynoted thatCNMI’sCommonwealth
CasinoCommissionhad approved just one of 18 junket applications
in a year, leading to IPI granting credit directly to VIP customers, a
risky proposition.
For the six months ended 30 June, IPI reported outstanding
receivables, due in 30 to 180days, ofUS$509million, comparedwith
US$513million in revenue. With aUS$37million bad debt provision
and US$145 million in guarantee deposits in hand, IPI had net
exposure of US$326million, twice reportedEBITDAof $160million.
Fitch believes IPI receivables have increased alongwithVIP revenue
andhave an average ageover 100days.
A soft opening of an expanded gaming floor with 200 tables and
400machines might change the revenuemix, which saw 96% from
the VIP segment in the first half of 2016. In addition to its 365 guest
rooms, Imperial Pacific promisesworld class F&B inpartnershipwith
Michelin star chef and restauranteur Brian McKenna, featuring five
Michelin star chefs in its 11 restaurants, four bars, a night club and
beachclub. IPI alsoplans topromoteSaipanasaweddingdestination.
Along with the hotel’s financing issues, there are also concerns
itself by claiming US$6.1 billion rolled in December, most likely
inadvertently. But the error does call into question the rigor used
to calculate the figures that IPI reports through Hong Kong stock
marketHKEX, where its shares trade.
The monthly roll numbers from Saipan have attracted legions
of doubters who ask how a casino with no accommodations, in a
destination with no true five-star properties that’s a four hour-plus
flight from anywhere could possibly produce such numbers on 16
tables. Others suggest the count is accurate, fueled by easy credit
and loose repayment terms. The former groupgets a boost from the
US$6.1 billion claim for December that defies logic and suggests IPI
isn’t careful about thenumbers it reports.
After 13 reports of monthly roll numbers, issued regularly on
the second of the followingmonth, on 2 January IPI issued a roll
total for all of 2016, US$32.4 billion, without a separate number
for themonthof December. That suggestsmonthly average roll of
US$2.7 billion in 2016, not unreasonable given amonthly high of
US$3.95 billion in September thenUS$3.8 billion inOctober, after
declaring the casino had reached a saturation point with US$3.2
billion in April.
However, adding up the reportedmonthly numbers for January
throughNovember 2016equalsUS$26.3billion. So toget toUS$32.4
billion, December’s total would have to be US$6.1 billion. Although
that’s repeatedly been brought to the attention of IPI, the company
hasn’t offered any correctionor explanation.
A sensible explanation would be that the US$32.4 billion
represents roll since the start of VIP operations (November
2015). For the first 13 reported months from November 2015,
VIP roll totaledUS$29.3 billion, whichwouldmake December’s
reported roll a reasonableUS$3.1 billion and amonthly average
since inception of US$2.3 billion.
For 2016, the total wouldbeUS$29.4billion, amonthly average
of US$2.45 billion, far beyond what others are rolling per table.
What’s troubling is that IPI can’t see its apparent mistake and
won’t correct it. Or maybe simple arithmetic was never part of its
reporting formula.
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