The difficult run of Southeast Asian casino operator Donaco International has continued into the new financial year with bad luck in the VIP segment and the negative impact of a Chinese crime syndicate hurting the company’s bottom line.
In a trading update filed with the Australian Securities Exchange on Thursday, Donaco noted a 113% increase in VIP gaming turnover at its Cambodian border property Star Vegas through the first four months of the 2019 financial year but said a win rate of just 2.47% compared with a theoretical win rate of 3.65% had offset the turnover boost.
Likewise, the implementation of online gaming operations had seen operating costs soar by 34% including the hiring of 120 new staff and the purchase of relevant equipment to run a 24/7 live dealer site.
At Donaco’s northern Vietnam casino Aristo, which sits on the border with China, operations have been negatively impacted by a Chinese crime syndicate that threatened VIP junkets and customers on the Chinese side of the border, essentially demanding protection money, the company said.
Donaco added that the syndicate’s actions proved particularly destabilizing in July and August but that results have improved in September and October after working with law enforcement agencies on both sides of the border.
“As of today, management is confident that the authorities have the situation under control and that the Aristo business will return to normal in the next few months,” said Donaco’s Executive Director, Group General Counsel and Company Secretary, Ben Reichel.
These latest challenges follow a difficult 18 months for Donaco due to an ongoing legal dispute with its former Thai business partners. Donaco is seeking damages of US$190 million via arbitration proceedings in Singapore after the Thai vendors continued to run gaming operations in defiance of non-compete provisions at Star Paradise, located adjacent to Star Vegas in Poipet.
This week’s filing included further details of the lengths the vendors – who own the land upon which Star Vegas is located – have gone to in order to disrupt the company’s operations. They include cutting off the electricity to part of the hotel, threatening to build a wall around the property to block access and commencing a defamation claim in Thailand complaining about Donaco’s ASX releases.
“There have also been developments relating to the two competing casinos operating on the vendor’s land,” Reichel said.
“One of these (Paramax) was owned by two of the vendor’s sons until August 2018. Ownership was then transferred to a person in Thailand, who promptly commenced defamation proceedings against us, claiming that the business has never had any connection with the vendor.”
Donaco said that, as a result of these ongoing troubles, revenue for the four months has fallen from around AU$30 million in 2017 to AU$23.7 million during the recent period.
However, Reichel added, “Management considers that the three factors which impacted the four month results have been addressed and will have a reduced impact in future periods.
“At DNA Star Vegas, the VIP win rate has improved strongly in November and the earlier fluctuations are normal and to be expected. While the costs of the online gaming business will continue, the revenue will start to exceed them as the business moves past the start-up phase.
“At the Aristo, the VIP gaming volume is being restored and is expected to continue to improve. Accordingly the November month to date results are showing a very strong improvement at both properties.”