GGRAsia – Japan bill faces higher hurdles in upper house: analysts

Japan bill faces higher hurdles in upper house: analysts

Dec 07, 2016 Newsdesk Japan, Latest News, Top of the deck

A bill legalising casino gaming in Japan will face higher hurdles in the upper house of the country’s parliament, say investment analysts covering the gaming industry.

Japan took an initial step towards legalising casinos on Tuesday as the lower house of parliament – a body known as Diet – voted through a bill to legalise in principle casino gambling, pushed by Prime Minister Shinzo Abe’s governing Liberal Democratic Party (LDP).

“With opposition parties having taken to the media to voice their displeasure post a walk out from the initial debate session/vote and polls showing a rather unenthusiastic public view towards casinos, we think a more balanced approach is likely to be taken in the upper house discussions,” said analysts at Deutsche Bank Securities Inc in a note on Tuesday.

They added: “It has been noted by [media] outlets, such as the Japan Times, that upper house lawmakers of the LDP have been upset with the handling of the bill to date.”

A committee of the upper house of the Diet is expected to begin deliberations over the casino enabling bill this week, according to several analysts.

“Even though the LDP party holds an outright majority in both the upper and lower houses, it does not chair the cabinet committee that will receive the IR [Integrated Resort] bill in the upper house,” noted a memo from Union Gaming Securities Asia Ltd.

“The upper house cabinet committee is controlled by Mr Namba Shoji, a member of the opposition [Democratic Party]. With this in mind, getting the bill out of the upper house cabinet committee represents a higher hurdle than getting it out of the lower house cabinet committee as the LDP will clearly need to bargain with the chairman,” the brokerage said in a Tuesday note.

It added: “We note that the cabinet committee of the upper house contains 20 members, of which 11 are LDP members. With this in mind, and under the assumption that the chairman Namba allows a vote, the LDP does not need support of any other parties to pass the bill through committee. Further, given that the LDP also holds an outright majority within the upper house, we would view passage out of the committee as the biggest hurdle.”

According to several analysts, there is little wiggle room in the event of delay. The current extraordinary session of the Japanese parliament ends on December 14.

Implementation bill

Casino legalisation in Japan will be a two-statute process. After the enabling bill legalising casino resorts at the conceptual level, a second piece of legislation – known as the implementation bill – would detail the specifics: how they are administered and regulated; the taxation regime to be applied to them; their location; and the number of licences to be issued.

Drafting the regulations that would govern the gaming market in Japan could take less time than expected, said investment bank Morgan Stanley in a Tuesday note.

“Previously, regulations required a minimum of a 12- to 24-month gap between the introduction and implementation bills. However, since the draft casino implementation bill is already under discussion and being completed by a task force, it is possible to shrink the timeline to as short as six months,” said Morgan Stanley analysts.

Japan’s government had announced in 2014 plans to set up a body to speed the process of opening the first casino resorts in Japan. The preparatory team was said to have conducted various research, but was reportedly disbanded due to slow progress of the casino enabling bill.

Analysts’ expectations are for at least one casino licence in each Tokyo and Osaka (pictured), with the potential for a third licence for Yokohama city. There is also the possibility for additional regional casinos outside of the major metropolitan areas.

“Given the infrastructure in Japan, and assuming operators are selected by year-end 2019, we would anticipate a build timeline of close to four years, which implies a 2023 opening timeframe,” said Deutsche Bank Securities.

Several international casino operators, including Las Vegas Sands Corp, MGM Resorts International and Genting Singapore Plc, have expressed interest in participating in a bidding process for a casino licence in Japan if casino gambling is legalised there.

James Murren, chief executive of Las Vegas-based MGM Resorts, said in November that the company was willing to invest up to US$9.5 billion in a casino project in Japan. Mr Murren said MGM Resorts was mainly interested in a metropolitan area such as Tokyo, Yokohama or Osaka.

Morgan Stanley estimates that Japan’s gaming market could be worth US$20 billion.

“While most of the global casino operators are interested, we believe Las Vegas Sands, MGM Resorts and Genting Singapore are the front runners and should benefit in the near term,” said the investment bank’s analysts.

But they added: “Despite Japan potentially being a very large casino gaming market … returns for the operators may not be high if they spend high capex [capital expenditure] (up to US$10 billion, according to MGM Resorts and Las Vegas Sands) and if Japan levies high revenue tax.”