inside asian gaming October 2015 4 EDITORIAL Kareem Jalal We crave your feedback. Please email your comments to
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[email protected] or call: (853) 6680 9419 www.asgam.com ISSN 2070-7681 Chief Executive Officer Andrew W. Scott Founder and Adviser Kareem Jalal Director João Costeira Varela Editor At Large Muhammad Cohen Contributors Paul Doocey, John Grochowski, James Hodl, Matt Pollins, I. Nelson Rose Graphic Designer Rui Gomes Administrative Assistant Latte Iao Photography Ike, Gary Wong, James Leong, Wong Kei Cheong Tarred With the Same Brush U ntil recently, Asia’s aspiring casino destinations had declared their determination to follow in Macau’s footsteps. Now, they’re at pains to point out they’re on a different path. “The whole industry has been painted with the same brush, but we’re nowhere near the situation in Macau, where revenue is really falling,” remarked Philippine billionaire Enrique Razon Jr, owner of Bloomberry Resort Corp., which operates the Solaire Resort and Casino at the burgeoning Manila Bay integrated resort cluster. In an interview with Bloomberg , Mr Razon said the Philippine casino market can grow without China through increased spending by mass and local gamblers. “The good thing now, in hindsight, is that our relationship with China is really not that good,” he said. “So we never had the business from China, which nowadays is probably a good thing.” Tensions between China and the Philippines sporadically flare up over the disputed Spratly Islands in the South China Sea, where China has begun building airbases, dredging sand and dirt to create 2,000 acres of land where little more than rocky reefs existed before. Its biggest project is on Mischief Island, which sits less than 150 miles off the Philippines’ Palawan Island but is 600 miles from China’s own Hainan Island. China has been ratcheting up tensions in the Spratlys, partly as a result of which the number of Chinese tourists to the Philippines fell by about 33% in the first quarter. Unlike Macau, where gaming revenue fell 36% year on year in the first nine months of 2015, revenue was actually up 16% in the Philippines in the first six months of the year, and state-run regulator Pagcor (Philippine Amusement and Gaming Corp.) expects growth could pick up in the second half. It seems investors were hoping for much headier growth, however, fueled by a flood of high-rollers from China, which has failed to materialize amid an anti-corruption drive spearheaded by President Xi Jinping and worsening relations between the two nations. Even though revenue at Solaire grew 9.5% in the second quarter to 5.99 billion pesos, higher operating costs and expenses led to Bloomberry posting a net loss of 773.5 million pesos. The company’s stock price has fallen about 60% this year, making it the country’s worst-performing major stock. Mr Razon added, though, that the company will continue pursuing premium players through junket operators instead of doing it directly. “The environment will remain difficult and investors will remain skeptical as it’s hard to imagine where spectacular growth will come from for Philippine casinos without China, since that’s the region’s biggest source of gaming traffic,” said Astro del Castillo, managing director at First Grade Finance Inc. Bloomberry’s planned investments in South Korea’s foreigners-only casinomarket, which is dominated by Chinese players, could also be impacted by continued weak demand from China. The company will probably know by December whether its bid to build a casino resort at the Incheon Free Economic Zone is successful, while a venture in Jeju Island may start making money next year, Mr Razon said. “This is the time to make good moves that will make you a lot of money down the road. We have to adapt to the market, whatever that takes,” said Mr Razon. But the most important way to adapt to evolving market conditions could be to look further beyond China. Bloomberry seems to be doing just that, and is now reported to be seeking a gaming permit in Argentina, where it would need to spend about $500 million to build a “respectable” casino, Mr Razon said. Meanwhile, Macau’s beleaguered operators were given some cause for optimism following a 2nd October report in Chinese-language newspaper Macau Daily that Li Gang, the director of the Chinese government’s liaison office in Macau, had indicated that the Central government recognizes gaming as the primary industry of the Macau economy and is studying possible measures to help lift it out of its current malaise. They’d have to wait, however, for further news on just what shape those supporting policies would take. “Potential policy support from the central government may surprise on the upside, but the details will be critical to understand as previous government statements have not always resulted in any positive impact on gaming revenues or visitation,” noted analysts from brokerage Sanford C. Bernstein & Co. The current outlook, based on a median estimate of 12 analysts surveyed by Bloomberg , is for Macau’s gaming revenue to drop 32% this year. Analysts at Nomura came out with a prediction that revenue would slide a further 8% in 2016, marking the third consecutive year of declines. “Our 2016 fiscal GGR forecast suggests VIP revenues returning to 2008/09 global financial crisis levels,” they added. Nomura did say, though, that it expected to see sequential improvement in mass-market gaming revenues for most Macau operators when official third-quarter figures were released in mid-October.