Inside Asian Gaming

January 2015 inside asian gaming 31 Feature Holders of the company’s subsidiary debt haven’t been included in the REIT negotiations, and they’re far from happy with all the financial legerdemain that created CEOC in the first place— “looting” is what some of them call it, and they want it reversed. Caesars wants to have the first phase of its Incheon megaresort open in time for the country’s hosting of the 2018 Winter Olympics and plans call for an initial expenditure of around $800 million—the whole is priced at $2 billion at full build-out—for 500 or more hotel rooms together with entertainment venues, a shopping mall, a stand-alone convention center and a casino with 100 table games and 150 machine games. Yeongjong, which lies about 50 kilometers west of Seoul, comprises the heart of a special economic zone the government has fashioned around Incheon International Airport for the express purpose of cashing in on China’s outbound travel boom. A second resort on a similar scale is also going up there, co-developed by Paradise Group, the leader of the country’s foreigners-only casino market, and Japanese machine gaming giant Sega Sammy. The Caesars project, a joint venture with Indonesian conglomerate Lippo and Singapore property developer OUE, covers 4.3 hectares encompassing 150,000 square meters of developable floor space. The partners want to have the first phase open in time for the country’s hosting of the 2018 Winter Olympics and plans call for an initial expenditure of around $800 million—the whole is priced at $2 billion at full build-out—for 500 or more hotel rooms together with entertainment venues, a shopping mall, a stand-alone convention center and a casino with 100 table games and 150 machine games. The company has even more ambitious plans for the Philippines. It’s a market that US-regulated operators have yet to come around to trusting, and perhaps because of that Caesars spies a lucrative opportunity in an environment where the government is also looking to resort gaming for an economic lift and, as in South Korea, might be open to accommodation for the sake of burnishing its efforts with a globally recognized Western brand. That hasn’t panned out so far. President Benigno Aquino leaves office in 2016, and the industry regulator, the Philippines Amusement and Gaming Corp. (PAGCOR), which operates as a direct arm of the executive, says it prefers a more prudent stance— says that derivatives held by some of them will pay “handsomely” if their claims force CEOC into default. Caesars has filed its own action in a New York court seeking validation of the transfers and a ruling that would prevent bondholders from filing notices of default. In its case the company singles out Elliott for possessing the derivatives— credit default swaps, as they’re called—which create “a blatant conflict of interest” and incentivize the fund, so Caesars claims, to trigger a default. “Elliott’s scheme is all the more troubling,” Caesars says in its filing, because the fund sits on the International Swaps & Derivatives Association committee that determines whether a company has indeed defaulted. Elliott could be the key to what happens in the weeks ahead because as the owner of 30% of a class of senior Caesars bonds it holds what is known as a “blocking position” in regard to any deal. As for the swaps, Elliott bought them before entering negotiations with Caesars in September and has continued to purchase them, according to Bloomberg sources. The firm denies Caesars’ allegations, calling them a “red herring,” and has filed its own motion to dismiss. Credit default swaps, famously criticized by Warren Buffett during the global financial crisis as “weapons of mass destruction,” are valued by bondholders as protection against losses or as a way to double down on a company’s creditworthiness. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, resulting in some instances in creditors profiting more from a swaps payout than an issuer actually meeting its obligations. or a safer one politically—of waiting to assess the impacts of the four IRs already approved for a special tourism zone on Manila Bay, two of which are up and running, the remaining two slated to open in 2016 and 2018. Caesars doesn’t want to build there, however. It has selected a site next to Manila’s Ninoy Aquino International Airport and has upped the ante by bringing in experts to advise on a redesign and expansion of the country’s main international gateway in concert with its plans. Its offer to invest $1 billion or more in the combined projects, together with the promise of 20,000 jobs, has piqued enough interest to gain Mr Loveman and company executives an audience with President Aquino and meetings with PAGCOR officials.