GGRAsia – Imperial Pacific to drop Heng Sheng profit share deal

Imperial Pacific to drop Heng Sheng profit share deal

Oct 29, 2015 Newsdesk Latest News, Macau, Top of the deck

Hong Kong-listed Imperial Pacific International Holdings Ltd, a firm that in July launched a temporary casino on the Pacific island of Saipan, said on Wednesday that it had “entered into deeds of termination” on a loan agreement and profit transfer agreement with Macau casino junket Hang Seng, also known as Hengsheng Group or Heng Sheng Group. Imperial Pacific stated – in relation to the move – that “the downturn of Macau gaming business is expected to continue”.

Third quarter VIP gross gaming revenue (GGR) market-wide in Macau fell by 38.0 percent year-on-year, according to official Macau government data published on October 16. Investment analysts say the Macau high stakes gaming market in particular has been weighed down by factors including an anti-graft campaign waged by China’s central government and a general slowing in the country’s economy.

Imperial Pacific had in January 2014 announced a deal to become an investor in the profit stream of junket operator Hang Seng. The junket was presented at the time as “one of the leading gaming promoters in Macau”, operating seven VIP rooms in six major casinos in Macau, offering a total of 82 VIP gaming tables. “Based on the information provided by the vendor, the unaudited net profit of the junket for the 10 months ended October 31, 2013 amounted to approximately HKD462.08 million [US$59.6 million],” Imperial Pacific stated at the time.

The deal involved a total consideration of HKD400 million, settled by Imperial Pacific via issuance of convertible notes with a 2029 maturity date.

In a filing it lodged last August, Imperial Pacific said it had recognised an HKD3-million (US$387,095) impairment loss in the first half of the year regarding its investment in Hang Seng, citing the fact that rolling chip turnover relating to that agreement – during the six months to June 30 – “continued to drop”.

During the first half of 2015, the company derived only HKD6,000 in revenue from the deal, compared to HKD11.8 million a year earlier.

Imperial Pacific said on Wednesday in relation to the termination of the deal with the junket: “The expected amount of profit stream is small.” The firm described the termination of its deal as “fair and reasonable”.

The company added: “The vendor has fulfilled the profit guarantee for the 2014 guaranteed period and as disclosed in the announcement of the company dated May 14, 2015, cash in the aggregate amount of HKD376 million was deposited to the company as alternative security for the profit guarantee for the period from January 1, 2015 to December 31, 2029.”

Imperial Pacific said the cash deposit was non-refundable, and it expected to record a gain arising from the termination of “approximately HKD221 million”.

The firm added:”The termination is in line with the group’s intention to prioritise resources to develop the integrated resort business on the island of Saipan. In addition, the group is also actively looking for other investment opportunities around the world, to develop tourist resort facilities (including gaming facilities).”