Inside Asian Gaming

September 2011 | INSIDE ASIAN GAMING 61 been unable to convince the new board that it is eligible for a regular licence after reneging on their original obligations to bring in foreign players and invest long-term capital. Precisely to give Thunderbird the opportunity to remedy their non-compliant status, PAGCOR offered to review their situation under a set of new guidelines that are intended to improve transparency and integrity in the entire gaming industry. PAGCOR hopes that the implementation of common guidelines will create a level playing field among licensees and establish predictability of licence compliance policies. PAGCOR has embarked on an evolution into an orderly regulatory environment and will not be deterred by the recalcitrance of Thunderbird. Failure to comply with investment commitments From 2006 to 2010, Thunderbird invested a total of PHP2.4 billion (US$56.5 million at current exchange rates) in both of their Philippine properties. That represents only 69% of the amount they originally undertook to invest during the period. In other words, the company failed to comply with their original agreement with PAGCOR. In the eyes of the regulator, that represents an anaemic capital flow. To exacerbate that, Thunderbird paid a total of PHP1.4 billion out of operating income as management fees to related companies outside the Philippines from 2005 to 2010. And this excludes the settlement of other types of intercompany accounts such as interest payments for shareholder advances. The 2010 Annual Report of Thunderbird Resorts Inc., the BVI parent of the Philippine operations, paints a difficult financial picture for the group. Noteworthy among several disclosures are serious problems associated with construction and start-up funding delays for their India casino project and the weight of over US$120 million in corporate debt. Such is the seriousness of the situation for the parent that in 2010 the group unloaded a 64% interest in its flagship Panama operations and four hotels in Peru, among the many measures being made in an apparent move to mitigate further financial difficulties. Nothing can be more telling than the statement by their external auditors that certain matters “indicate the existence of a material uncertainty that may cast significant doubt on the ability of the Group to continue as a going concern”. The 2010 Annual Report shows that both Philippine properties are the largest income producer for the group worldwide. It is therefore not surprising that Thunderbird has taken an extremely aggressive defence against PAGCOR because the Philippine cash flows are clearly subsidising the shortfalls elsewhere. Given this situation, it is unlikely that Thunderbird would be able to fulfil its investment commitments in the Philippines. For Thunderbird to say that“it felt it had kept its side of the bargain with the Philippine government, PAGCOR and the people of the country” is obfuscating the deployment of cash and capital to other projects that can otherwise be used to comply with their investment commitments in the Philippines. Pre-emptive legal manoeuvres While PAGCOR officials kept the door open for discussions to find a mutually acceptable solution up to the eve of the deadline imposed on Thunderbird, the latter took the offensive strategy of seeking injunctive relief from the court to constrain PAGCOR from exercising its regulatory prerogatives. PAGCOR had no desire to immediately close the Thunderbird casinos while discussions were taking place. But the aggressive and pre-emptive legal manoeuvres undertaken by Thunderbird left PAGCOR with little choice but to serve notice of closure. Thus, to say that PAGCOR’s officials“turnedup in themiddle of the night” to “claim unspecified breaches of the resort’s operating terms” is obviously twisting the facts and the real sequence of events. As a consequence of the notice of closure, PAGCOR withdrew its resident monitoring teams in the Thunderbird casinos. Without these monitoring teams, PAGCOR could no longer guarantee the fair conduct of games played in the casinos and, as a result, a warning to the general public was published in the newspapers. Tracking a banner year The statement that “in a region where most casino jurisdictions are quarterly setting new gross revenue records, PAGCOR appears to be going backwards” is patently false. On the contrary, Chairman and CEO Mr Cristino L. Naguiat, Jr is steering PAGCOR towards achieving a banner year in 2011. The PHP3.1 billion total income recorded in July represents the biggest ever earned in a single month in PAGCOR’s history. The July performance is the third month in a row where income records were broken after robust earnings in May and June. PAGCOR’s revenues for the first seven months of this year of over PHP20 billion is almost PHP2 billion higher than the 2010 performance. By improving facilities andemployingprudence No choice—PAGCOR was forced to warn the public off using the country’s two Thunderbird casinos, says the regulator PAGCOR