Inside Asian Gaming

INSIDE ASIAN GAMING | January 2014 22 In Focus T he new year had barely begun before Macau’s gaming industry produced its first big story. And the story had barely broken before questions were being asked about the deal’s opacity. In early January, International Entertainment Corporation, controlled by Hong Kong’s Cheng family, whose patriarch, Cheng Yu Tung, is Asia’s fourth-richest man, agreed to pay HK$7.35 billion (approximately US$950 million) for a 70% stake of Suncity Group Ltd. The deal is seen as a way for IEC to gain exposure to the coveted Macau gaming sector given the lack of new license opportunities. Approximately two-thirds of revenue is generated by the VIP segment, in which junket operators are the main players ( see following VIP Gaming: The Financial Model ). According to Grant Govertsen, a managing partner at Union Gaming Group in Macau, the takeover is dependent on four conditions: first, that Suncity generates at least HK$1.5 billion in EBITDA in 2013; second, that Suncity generates at least HK$1.68 trillion in rolling chip volume in each of 2014 and 2015; third, that Suncity operates at least 280 gaming tables; and fourth, that Suncity Going Public The proposed acquisition and possible backdoor listing of Suncity Group made a splash that rippled through Macau’s gaming industry. But does the deal add up to more transparency or less? has access to HK$12 billion in available credit from casino operators, junket collaborators and third-party financiers. In a report, Mr Govertsen compared the acquisition favorably with practices in Las Vegas. “[We] are seeing more and more Macau gaming related entities embrace the concept of having publicly traded equity. We would argue that this should have a longer-term positive impact—at least with respect to the industry’s reputation— as having publicly traded equity requires an increased level of transparency and an increased level of oversight.” However, others were less sanguine. TheWall Street Journal raised questions over exactly what IEC would be buying.“It is unclear which of SuncityGroup’s assets areunder the control of Suncity International Holdings Ltd., the entity in which International Entertainment said it might invest,” the WSJ pointed out. Further, while Hong Kong’s securities and exchange operators would not comment specifically on the deal, the WSJ noted both a previous investigation of IEC’s shareholding structure and criticism of the deal’s structure.