Inside Asian Gaming

INSIDE ASIAN GAMING | July 2011 8 like significantly to exceed its 2010 target of 8.3 million inbound visitors. Casino resorts are seen as an important tool in achieving that. IAG has been given some background from several sources on how that might be achieved. The foreigners-only casinos currently in South Korea—eight on Jeju Island off the south coast; three in Seoul; two in Busan, and one each in Incheon, Daegu and Sokcho— are mainly aimed at the junket trade rather than at mass tourists. Several major casino operators—including some with ties to Macau—are said to have had talks with the South Korean authorities in the past few months about the possibility of being involved in Korean IRs. That’s the good news. The not-so-good- news is that South Korea may only allow limited foreign investment into the revamped gaming market. The main points made to IAG by industry sources were as follows: • The IRs would probably be financed by domestic capital rather than foreign capital. Many of South Korea’s industrial conglomerates—known as chaebols— that have driven the country’s rapid economic growth, are cash rich. They are looking for new opportunities for capital growth in a market where—like Japan— interest paid on capital deposits was low even before the financial crisis of 2008. • Foreign investment assistance may be limited to management and perhaps branding contracts for the IRs. Only foreign operators are seen as having the level of experience and understanding needed to run a large and complex casino and tourism resort. • The selection process for any IR management partner may not be via open tender (as happened in Singapore). It is more likely to come via a shortlist drawn up by government officials after private consultations with the industry. “The Koreans are not for the most part looking for foreign capital investment. They are looking for foreign tourists,” says one source spoken to by IAG . There is one exception to the Korean sniffiness about foreign capital, say several sources. “The Incheon City project—also known locally as the Lippoland project—hasn’t so far been able to find Korean investment. But foreigners don’t want to invest there unless there’s a foreseeable return, and that means local gaming,”saysBenLee,ManagingPartner of IGamiX Management & Consulting, who was willing to go on the record for this story. Mr Lee has previously been a marketing consultant for the Seven Luck Casinos operated by Grand Korea Leisure, a state-run company that had a partial privatisation in November 2009 when 30% of the company was floated on the Seoul stock exchange. The original Incheon City project first emerged in 2005 as Woonbrook Leisure Complex. It included in the plans an integrated gaming resort component with a notional capex of US$1.12 billion, the working title of ‘Poseidon Resort’, and a provisional opening date of 2013. LIPPO Incheon Development Co (a joint venture between Hong Kong-based construction company LIPPO Group and Incheon Urban Development Corporation) was named at that time as a 5% equity partner in the general Incheon City project, hence the nickname ‘Lippoland’. But the global financial crisis of 2008 appeared to drown any hopes of Poseidon Resort getting Inbound tourists to Korea 12 25 YoY (RHS) 4.3 4.7 5.3 5.1 5.3 4.8 5.8 6.0 6.2 6.4 6.9 7.8 8.8 9.8 10.8 (%) Foreign visitors to Korea 20 15 10 5 0 (5) (10) 10 8 6 4 2 0 98 Source: KTO, CLSA Asia-Pacific Markets 99 00 01 02 03 04 05 06 07 08 09 10CL11CL12CL the necessary finance. It seems unlikely that the original design concept or the original capex would be adhered to if an Incheon City IR were to be built. Capital and equity markets are not as bullish as they once were regarding rates of capital return on Asian casino projects outside Macau. Incheon already has one casino—though it would hardly be serious competition for an IR. The Golden Gate, run by Paradise Group at the Hyatt Regency hotel, is only a few minutes’ drive from Seoul Incheon airport, but it’s tiny—25 tables and 50 slot machines. Overplayed Fears that foreign investors would be frozen out of involvement in the rest of South Korea’s potential IRs may be overstating the case slightly. Even the notoriously inward- looking North Korea has had some foreign gaming investment. Dr Stanley Ho—famous for his ability to charm the ideological pants off themost puritanical politician—managed to set up that country’s only casino in the basement of a Pyongyang hotel. But the industry source believes that— paradoxically—free market South Korea will find it easier to stick to its guns on limiting foreign investment in casinos. “The chaebols in Korea [large corporations such as Lotte, Samsung and Hyundai] have access to a lot of capital. Companies of that calibre would probably be able to fund IRs without the need for foreign capital. Foreign involvement might be limited to managing the IRs— on the basis foreign companies have the experience and ability to manage them. “You may find there will be joint ventures of some sort. If foreign investors do become involved, it may be by government invitation after private talks, rather than via public tender in the manner of Singapore,” said an insider. “I think they’re looking at two or three spots as possible locations for IRs—Incheon City definitely and perhaps Jeju Island,” adds Ben Lee. “There have been several indicators prior to the recent statement by the Minister of Culture that Korea might open the debate on allowing local gaming in the IRs,” says Mr Lee. “Kangwon Land’s management appear to be aware of the proposed attitudinal shift. They have been quietly accumulating a war chest to diversify by investing outside Cover Story