Inside Asian Gaming

inside asian gaming MAY 2015 36 To finance the transaction, Donaco secured a $100 million loan at 6.85% from Taiwan’s Mega International Bank. Mega Bank’s cataloguing of assets to secure the loan has delayed the deal’s closing from April to July, Donaco says. The company raised $100 million through an equity offer to shareholders and will issue 147.2 million shares, valued at $120 million, to the seller, Thai businessman Somboon Sukjaroenkraisri and his son Lee Bug Tong. “It could almost be seen as a backdoor listing of Star Vegas, since the business we’re acquiring is much larger,” Mr Reichel says. “But the critical point is that the vendor is only getting 18% of the company. Usually in a backdoor listing deal, the vendor would get 80%. So we think it’s a very good deal for our shareholders and that’s why it’s been so widely supported.” The shareholder vote in March showed more than 99% approved the deal. Union Gaming notes the purchase price of six times EBITDA is a discount to its 8.5 times earnings valuation for NagaWorld. Not everyone is convinced it’s a great deal, though. “That’s a large amount of money to pay for a property facing two major risks,” Spectrum Asia CEO Paul Bromberg says. “First, Cambodia- Thailand border conflict: border skirmishes could close the border overnight as has happened before. Second, the Thai government could legalize casino gaming in Thailand. That is unlikely to happen in the foreseeable future, but it would kill Poipet overnight. If the Thai patrons don’t have to drive three-and-a-half hours there, they won’t.” Donaco feels it has mitigated its risks through the sale agreement that includes a two-year guarantee of $60 million in EBITDA, a sum that would nearly cover Donaco’s cash outlay. The seller is also signed to a two-year management contract. “It’s a transition period for our Cover Story In Cambodia, NASDAQ listed Entertainment Gaming Asia gets 25% of net win from its 670 EGMs at NagaWorld, 27% from 170 machines at Thansur Boko Highland Resort between Phnom Penh and Sihanoukville, and 40% from 300 EGMs at DreamWorld Poipet, which EGA built and operates on its partner’s premises. In its three Manila operations with 557 EGMs, the take ranges from 15% to 35% for EGA, which is 64.8% owned by Melco International and was formerly known as Elixir Gaming Technologies. Other revenue share operators active in Cambodia include casino operator Silver Heritage, which also has machines at NagaWorld, Malaysia’s Waz Lian Group, manufacturer/distributor RGB International, Cambodia’s Golden Tree and Australia’s Indo Pacific Gaming, plus EGM manufacturers. “Operations gives us the chance to test the market out properly and give floor space and time for players to familiarize themselves with the game,” Weike Gaming Chief Operating Officer Ray Poh says. “With casinos in the region adopting the strategy of three month trials instead of direct purchase, it gives only a short period of time for players to understand the game concepts and for the games to make a lasting impression on them. We’ve had instances where games being left on the floor for over six months gradually increase their performance to be able to hold their weight or even perform better than the floor average.” Revenue share happens throughout the gaming world but is particularly attractive to operators in smaller markets. Casinos get machines for the floor without capital outlays and an opportunity to see which games customers like. Machine providers get steady revenue streams and product exposure. And players get a wider range of game choices. team to learn every detail of the business, relationships with junkets, kind of a handover period,” Mr Reichel says. There’s no management fee for the seller, but a potential percentage of profits if the earnings target is met. There’s also the question of growth for Star Vegas and Poipet overall. “There are eight casinos that have been doing this for 15 years,” Global Market Advisors’ Mr Klebanow says. “Some new operator isn’t going to do anything they haven’t tried already.” “Star Vegas is a very well established business but we think it’s got plenty of growth in it,” Mr Reichel replies. He reports Donaco has talked to Malaysian and small Macau junket promoters about visiting Star Vegas, but admits bringing in non-Thai players would require changes, such as Mandarin-speaking dealers and Chinese food. “We see organic growth from upgrading of the road and rail infrastructure from Bangkok,” Mr Reichel says. “By end of the year, that should be a pretty comfortable two-and-a-half hour drive.” Transport improvements are part of the larger ASEAN Economic Community initiative to allow free movement of goods between the ten countries of the Association of Southeast Asian Nations. Equally important, the initiative should also lead to 24-hour border opening by year’s end. Thailand is also considering a special economic zone on its side of the border to encourage more business development along what’s already a thriving trade route. “On the whole we think Poipet has quite a bit of growth ahead of it,” Mr Reichel says. “Unless you go under the assumption that in Thailand gambling is going to be legalized, which we don’t think is a possibility in the short term or even medium term.” Donaco has $360 million riding on that opinion.

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