The Tigre de Cristal casino resort in the Russian Far East looks set to maintain a monopoly until the second half of 2019 in the special investment zone that hosts it, said a Friday note from Union Gaming Securities Asia Ltd.
The brokerage stated – referring to Summit Ascent Holdings Ltd, a key backer of Tigre de Cristal, a property in the Primorye Integrated Entertainment Zone (IEZ) near Vladivostok: “In all likelihood Summit Ascent will remain the lone operator until at least second half 2019…”
“This is an enviable runway as it allows the company to effectively lock up the locals market in the meantime,” said analyst Grant Govertsen.
Union Gaming stated that it was conservatively estimating Tigre de Cristal’s VIP turnover to increase by 80 percent year-on-year for the whole of 2017. Hong Kong-listed Summit Ascent is controlled by Asian gaming entrepreneur Lawrence Ho Yau Lung.
The brokerage added that the possibility of change to the casino taxation system in Russia – reported recently – was in its view “unlikely”, further noting that the taxation burden on casinos there was “still the lowest in Asia,” with a per gaming device and per table tax that equated approximately to 2 percent of casino gross gaming revenue (GGR).
But Union Gaming did observe that currency exchange issues were “likely holding back some amount of foreign tourist mass business” at the property.
“This is because foreign currency must first be exchanged (for a fee) into roubles at a third-party bank located within Tigre de Cristal, which must then be exchanged for gaming chips. The process repeats itself in reverse when a customer is ready to leave, including incurring foreign exchange transaction fees again,” wrote Mr Govertsen.
Friday’s report followed a non-deal roadshow for investors held recently by Union Gaming.
The brokerage added that by the latter half of 2019, it “would expect Summit Ascent’s Phase 2A, as well as NagaCorp’s project, to come online [to market].”
The latter comment was a reference to another Hong Kong-listed firm, Cambodian casino operator NagaCorp Ltd, which is also investing in Primorye.
In October last year, NagaCorp’s chairman had told GGRAsia that the firm was completing the piling work on its Russia resort. A first-phase cost for the Primorye scheme of between US$50 million and US$70 million has been mentioned in previous commentary by the company.
“Ultimately we do think scale will be beneficial and expect the cluster-effect of multiple casinos to have a positive impact on market-wide VIP GGR,” said Mr Govertsen.
It was recently reported by several casino industry trade publications that the Russian federal government – purportedly concerned about delays to the projects promised by other investors – had taken over leadership of the Primorye IEZ.
Mr Govertsen’s memo didn’t explicitly refer to those media reports, but noted: “One of the three other licensees, Royal Time, recently had its licence pulled due to delays.”
Royal Time LLC had planned to build a so-called integrated resort in the zone, with the working title ‘Phoenix’. The project had reportedly been marred by delays and legal disputes.
“We believe the Deputy Prime Minister of Russia, who is largely responsible for the development of Russia’s Far East, is putting pressure on the other licensees to move forward with their respective projects,” said Union Gaming’s Mr Govertsen.
In Primorye’s favour were infrastructure and other improvements helping to make Vladivostok and its surroundings an increasingly popular tourism destination, suggested the brokerage.
They included: a new highway reducing to 15 minutes the transit time between Vladivostok’s airport and the IEZ; and the implementation of an online visa application system reportedly due to start in three weeks. This would “make it much easier for Chinese to obtain individual visas,” said the institution.
“Ultimately, we like the odds of a jurisdiction that is friendly with China to enjoy the benefits of outbound Chinese tourism (i.e. opposite of what [South] Korea is currently experiencing),” wrote Mr Govertsen.
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”We expect Goa to quickly become a US$1 billion market as it transitions to land-based casinos (from US$150 million today), which is still just a fraction of India’s total GGR potential of US$10 billion to US$17 billion”
Analyst at Union Gaming Securities Asia