GGRAsia – Macau junket investor pledges US$3.14 bln for Saipan casino

Macau junket investor pledges US$3.14 bln for Saipan casino

Aug 13, 2014 Newsdesk Latest News, Macau, Top of the deck, World

Macau junket investor Imperial Pacific International Holdings Ltd has agreed to a cash investment 50 percent above the minimum originally mentioned in filings – in order to secure a casino licence on the Pacific island of Saipan (pictured).

The firm – an investor in the profit stream of Macau junket firm Hengsheng Group – on Wednesday said it will spend US$3.14 billion to secure an exclusive casino licence on the largest populated island of the Commonwealth of the Northern Mariana Islands (CNMI). Previous filings by the company to the Hong Kong Stock Exchange said the government there required bidders to pledge “a minimum” of US$2 billion.

The Lottery Commission of CNMI confirmed on July 15 that Best Sunshine International Ltd, a subsidiary of Hong Kong-listed Imperial Pacific International, had been awarded the licence subject to “terms and conditions” being agreed.

Imperial Pacific International on Wednesday said it might be willing to invest even more than US$3.14 billion depending on “market circumstances”.

Whether an as yet unproven market will be worth such a large investment is likely to depend on a number of factors, including how easy it is to get there. Scheduled flights from Shanghai to Saipan currently operate at least six times per week, with an average flying time of 4 hours, 20 minutes.

Casino industry analysts have recently suggested that a clampdown on corruption in mainland China and greater scrutiny of Chinese officials and entrepreneurs spending lavishly on entertainment, has increased the appetite of high rollers to look for gambling venues outside Macau.

At the same time, an increase in competition among junkets within Macau and in some cases a narrowing of margins on VIP play accruable to the junkets, has created incentives for them and their backers to look at new locations.

Matt Hurst, executive vice president gaming operations and marketing at the under construction Manila Bay Resorts in the Philippines, recently told GGRAsia that some of the existing private sector casinos in Manila are offering junkets 50 percent revenue share, versus in Macau 40 percent or 42.5 percent revenue share. Such arrangements do however carry more risk for junkets than traditional rolling chip commission if the players have sustained wins, and both sides to the deal must also cover expenses including any taxes and player reinvestment costs.

Imperial Pacific International added in its latest filing that the conditions for the 25-year Saipan licence – which has an option for renewal for a further 15 years – include construction of 2,004 hotel rooms, 17,000 square metres (183,000 sq feet) of total gaming floor area and US$100 million-worth of “themed entertainment”.

“Currently, IPI [Imperial Pacific International] estimates that the total costs of these proposal requirements are approximately US$3.14 billion dollars (equivalent to approximately HK$24.4 billion), nevertheless, IPI shall review from time to time the business environment and market circumstances and may develop integrated resort(s) beyond the proposal requirements,” said the company on Wednesday.

Trade in its stock – which has been subjected to two inquiries and two warnings by Hong Kong’s Securities and Futures Commission as to concentration of ownership – was suspended between 9am and 1pm on Wednesday, prior to the announcement.

Some opposition

The government of CNMI – a U.S. territory – and its Lottery Commission had faced legal challenges to the bidding process and the law enabling a casino resort, which requires up front payments from the successful bidder, rather than a tax on gaming revenue.

In early July, Superior Court Associate Judge David A. Wiseman, sitting in Saipan, criticised the original casino law, describing it as “haphazard and poorly drafted”.

On July 10 the Senate of CNMI passed a bill to repeal and re-enact the casino law for Saipan, to “clarify ambiguities” in the original statute and fully empower the local Lottery Commission to award an exclusive Saipan casino licence.

Imperial Pacific International says in Wednesday’s filing that it must pay an annual Casino Resort Developer Licence fee of US$15 million during the term of the licence. The fee will be adjusted every five years to account for cumulative increases in consumer price inflation.

The Hong Kong-based investor has also agreed that a theoretically refundable US$30 million deposit be paid into an escrow account, and any interest on it used by the government toward the cost of the annual licence for the first and fifth year of the licence.

Imperial Pacific International – formerly a dormant listed entity called First Natural Foods Holdings Ltd – said in a filing in early July that it would distribute cash vouchers totalling US$10 million among all locally born adults in CNMI within 60 days of winning a casino licence.

The parent said on Wednesday, referring to its subsidiary Best Sunshine International: “The applicant and IPI are actively looking for quality land on the island of Saipan for the development of an integrated resort as well as engaging a team of specialists in the relevant fields, including construction planning, design and operational management, to develop and devise the concrete implementation schedules.”