The president and chief executive of United States-based tribal casino operator Mohegan Gaming and Entertainment says “all necessary construction permits and approvals” have been received for the group’s first foray into Asia, namely its Inspire project in South Korea.
“We have begun to mobilise construction at our development site in Incheon, South Korea, having completed our negotiations with our general contractor and following the receipt of all necessary construction permits and approvals,” said Mario Kontomerkos (pictured) in commentary contained in the group’s second fiscal quarter results announced on Thursday.
An earnings deck accompanying the results, indicated phase one of Inspire would start making contributions to group earnings before interest, taxation, depreciation and amortisation by the year 2021, with contributions from phase two by 2022. The company said on Thursday that the first phase of the complex should open in the last quarter of 2021.
The supporting materials also said there had been “considerable recent progress” in relation to the project, which is near to Incheon International Airport, South Korea’s main air hub and an important regional air transport interchange.
The advances in the scheme included a pre-development licence being “affirmed” by the authorities there, said the company.
Mohegan Gaming also reiterated it had signed last year a “northern Asia distribution agreement” with Live Nation, a U.S.-based events promoter and venue operator, as well as having its previously-announced “global partnership” with the Paramount Studios brand regarding a theme park.
The group added in its latest earnings deck there had been “considerable construction financing progress” on the Inspire project, with a “pre-construction” phase “initiated”, although the materials didn’t give an update on the budget for the scheme.
Mohegan Gaming swung to a net loss in the second fiscal quarter ended March 31. Such loss was just under US$12.4 million, compared to a profit of US$28.6 million in the prior-year period.
The group said income from its existing U.S. operations fell 60.4 percent, to US$22.2 million versus US$56.1 million in the prior-year period, “driven by one-time accelerated depreciation due to the closure of Casino of the Wind”. That was a reference to a particular slot gaming area at the group’s Mohegan Sun property in Uncasville, Connecticut.
The group has also previously expressed interest in acquiring a gaming licence for a regional location in Japan. A maximum of three licences are to be issued by Japan in a first phase of casino liberalisation,
Mohegan Gaming’s Inspire scheme will need to draw its casino customers from countries neighbouring South Korea, as only one gaming venue in that country is allowed to offer gambling to locals.
An April memo from Fitch Ratings Inc gave commentary on the Paradise City project – the first new large-scale casino resort to open near Incheon. Fitch said Paradise City promoted by Paradise Sega Sammy Co Ltd – a tie up between Japanese conglomerate Sega Sammy Holdings Inc and South Korean gaming firm Paradise Co – had been “underwhelming”, in terms of its business ramp up since opening in April 2017. Fitch noted the property had generated approximately US$18 million in earnings before interest, taxation, depreciation and amortisation in 2018.
Caesars Korea, a unit of U.S.-based Caesars Entertainment Corp, is also planning a US$700-million resort at Incheon.
Caesars Entertainment said in its first-quarter earnings results last week that the company expected capital expenditure (capex) in the range of US$335 million to US$410 million in 2019, which the company said would be about US$140 million higher to include “cash deployment” in relation to the South Korean project.
The firm said the development capex reflected US$60 million remaining cash outflow from Caesars for the South Korea joint venture, “should the project continue”.
“We have to secure financing [for the South Korea project]. We have to get agreements and have the project come on budget, and so there’s always risk associated with any project of that type,” said Eric Hession, Caesars Entertainment’s chief financial officer, in the firm’s first-quarter earnings conference call.
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Vitaly Umansky, Eunice Lee and Kelsey Zhu
Sanford Bernstein analysts