Inside Asian Gaming

INSIDE ASIAN GAMING | May 2012 40 to expand its facilities, as part of a deal with its Founder and CEO, Dr Chen Lip Keong. Within a three- to five-year period, two projects will be developed next to NagaWorld by Dr Chen, NagaCorp’s majority shareholder, and then acquired by Naga upon completion. The projects are NagaCity Walk, a two-level pedestrian mall linked to the existing NagaWorld site, and an integrated resort complex, which will include hotel rooms, shops and convention facilities. Investors might be interested to note that the latter facility will be known as the ‘TSCLK complex’— which is short for ‘Tan Sri Chen Lip Keong’; Tan Sri being an honorary title granted to Dr Chen by his native Malaysia. The reasons these two projects are being developed independently by Dr Chen rather than directly by Naga are—according to company sources—that land grants for casino projects are politically sensitive in Cambodia. It made more sense for the government to do the land deal personally with Dr Chen as thanks for his charitable and other public works in Cambodia, said sources. After all, NagaCorp may have been the first Cambodia-based business in modern times to list on an international bourse, but it still needs to be mindful of the realities of operating in a third-world country if it intends to maximize shareholder value. The combined development costs for TSCLK and NagaCity Walk—known jointly as Naga 2—are expected to be US$369 million. That comprises US$275million forTSCLK and US$94mmforNagaCityWalk. Oncompletion, scheduled for 2015, NagaCorp will acquire the projects from Dr Chen, in exchange for shares or convertible bonds to the capital value of the project. After conversion of the instrument issued to Dr Chen, minority shareholders in NagaCorp will be diluted by approximately 42%, though analysts point out that shareholder dilution should be quickly offset by increased earnings generated from the new project. There are several potential challenges on the horizon for NagaWorld. While Naga 2 is set to transform the property, it could also put margins under pressure and expose the company to the risks that come with rapid expansion. Another possible risk is competition from new casino projects outside Naga’s monopoly zone. A few prospective developers have announced plans to develop a casino in Siem Reap, home of the magnificent Temples of Angkor, but thus far, none has committed shovels to the ground. The biggest threat to NagaWorld is that it could lose its key competitive edge relative to Macau and Singapore after its concessionary tax rate expires in 2018. There is no clarity as to what taxation regime Naga will face after that. Mr McNally remains sanguine about NagaWorld’s prospects, however, believing the government will avoid any policy that will disadvantage the company, which not only provides Cambodia a valuable tourism draw, but has also long been in good standing with the authorities. “The government is trying to do everything it can to develop the country. It’s very pragmatic,” says Mr McNally. That pragmatismcouldverywell translate toNaga continuing to enjoy its favorable position in the country for the foreseeable future. Korean Grill at NagaWorld Feature Timothy McNally NagaWorld Grand Ballroom