Inside Asian Gaming

November 2010 | INSIDE ASIAN GAMING 11 and internationally for the quality of its management. There are also concerns that Pagcor, as an operator of 13 casinos in its own right, has not always been an honest broker in its dealings with privately-owned casinos it perceives to be market rivals to its own establishments. Aruze, a Japanese gaming equipment manufacturer, put US$100 million into an escrow account nearly two years ago effectively as a down payment on a casino resort at Manila Bay. That project was stalled over Aruze’s insistence that it be granted title to the land—a special dispensation from the country’s normal rules on foreign investment. Aruze fretted that without such title, it could lose its infrastructure investment at any time. Just before the country’s presidential elections in May, the then Chairman of Pagcor, Dr Efraim Genuino, managed to secure a so-called ‘midnight deal’ on the land title issue in Aruze’s favour. The new government of incoming President Benigno Aquino, after some deliberation, appears to have agreed to honour this deal. That could encourage other foreign investors to come forward and seek similar terms. The election in May of a new government pushing for reform of the public sector appears to be a real opportunity for the Philippines to turn a new page in its regulation of the casino industry and to form new partnerships with foreign investors. There are, however, some signs of ambivalence toward the industry by some members of the new administration. There have been a number of initiatives that look like political grandstanding. One was the announcement two months after the election of a moratorium on expansion of land- based casino gaming. It’s unlikely, though, that in the medium to long term this will be a major problem for the industry. Push and pull All governments are essentially coalitions of people with a considerable range of opinions. There is some evidence that the Philippines government is currently being pulled in two conflicting directions regarding the casino sector. The more left-leaning wing of the administration appears not to like gambling at all, and would probably be quite happy to see it banned altogether. The President and his immediate advisers seem to take a more pragmatic view. They are willing to keep it going for a number of reasons. First, it doesn’t look good to foreign investors if the government were suddenly and unilaterally to strip existing foreign owners such as Genting Hong Kong of their property rights. Second, gaming provides a useful form of tax income for community causes. President Aquino showed the Cover Story importance he gives to the Pagcor issue by appointing Cristino Naguiat, one of his long-standing friends and allies, as Pagcor chairman to replace ex-president Gloria Arroyo’s appointee, Dr Genuino. Members of Pagcor’s new team management team recently visited Macau to learn more about regulatory and management practices in the world’s biggest casino market by gross revenue. Macau is itself still a work in progress in regulatory terms, however, with no slot machine regulations yet published even though it is eight years since market liberalisation. Reforms While the top people in the Philippines administration seem to be broadly supportive of the casino sector, they do appear to want reform. IAG understands awide rangeof options havebeendiscussed, including spinning off Pagcor’s regulatory function into a separate body with no direct commercial interest in the industry. A less radical but possibly more politically acceptable solution domestically would be to keep Pagcor’s dual role but introduce more market discipline to the organisation by privatising or part privatising it. Full privatisation of Pagcor was suggested recently by Ramon Ang, President of San Miguel Corporation, a Philippines conglomerate. He offered to buy the organisation from the government for US$10 billion, suggesting to a Philippines newspaper that Malaysian billionaire Robert Kuok was likely to be involved. Mr Kuok later denied that. In a separate development, a Hong Kong conglomerate reportedly expressed interest in buying Pagcor. Pricing Even assuming a conglomerate or an individual has significant funds for a buy out, valuing Pagcor has proved difficult. In 2007, Pagcor’s original charter (due to expire in July 2008) was renewed for another 25 years. Pagcor had a declared income from gaming taxes and operator licensing fees of P29.78 billion (US$640 million) last year. Given that its concession is due to last at least another 22 years, the valuation of US$10 billion suggested by Mr Ang Success story—Resorts World Manila President Benigno Aquino—sincere about reform