South Korea’s new casino resort projects “will have difficulty achieving robust returns on investments” due to the inability to serve local gamblers, Fitch Ratings Inc says.
The credit rating agency states new foreigner-only, large-scale integrated resorts in South Korea are expected also to “face competitive pressures” from casinos in other Asia-Pacific jurisdictions.
“We believe this pressure will not abate as the first casino opened in Vladivostok, Russia in 2015, four new large-scale casinos are scheduled to open in Macau through 2017 and Japan continues to consider legalisation,” Fitch said in a note on Friday.
South Korea currently has 17 casinos, but the country’s nationals are only allowed to gamble at one of them – Kangwon Land in an upland area of Kangwon province.
While Kangwon Land continues to see “solid growth”, the foreigner-only casinos in South Korea saw aggregate gaming revenue decline by 10 percent in 2015, Fitch stated. The rating agency said the negative performance was related to dwindling gambling volumes from Chinese players, influenced by mainland China’s ongoing corruption crackdown and slowing economy.
“Fitch believes chances that locals will be allowed to gamble elsewhere in the medium term are remote based on our conversations with the country’s officials and incumbent operators,” the agency wrote.
A consortium between U.S.-based Mohegan Tribal Gaming Authority and South Korean chemicals manufacturer KCC Corp last month was awarded a casino licence by the South Korean government, as part of an integrated resort licence bidding process initiated in 2015.
The Inspire Integrated Resort project (pictured in an artist’s rendering) will include a casino with 250 gaming tables and 1,500 slot machines, a three-tower luxury hotel complex with 1,350 rooms, a 15,000-seat arena, a Paramount Studios theme park and a eco adventure park. It will be located near the Incheon International Airport. Mohegan Sun expects the project’s U$1.6-billion first phase to begin operations by 2020.
There are two other casino projects also planned for Incheon.
South Korean foreigners-only casino operator Paradise Co Ltd has linked with Japanese pachinko operator Sega Sammy Holdings Inc for a project in Incheon referred to as Paradise City and already under construction. The scheme, with a total area of 330,000 square metres (3.55 million sq feet), is presented in its official website as having a price ticket of KRW1.3 trillion (US$1.05 billion) and featuring a foreigners-only casino with 160 live table games, 388 electronic table games and 350 slot machines. It is scheduled to open in 2017.
The other announced project for Incheon is the result of a partnership between U.S. casino operator Caesars Entertainment Corp and Hong Kong-listed real estate developer Lippo Ltd. Construction has not yet started.
The project led by Mohegan Sun faces some “execution risk” as South Korea is a new market for the U.S. tribal operator and the nearby Paradise City project will come online in 2017, three years before Inspired, Fitch wrote. But if Mohegan Sun’s project is successful, it will represent a “significant upside” for the casino operator, the rating agency said.
Fitch stated that casino gambling in Incheon “could be viable if the total number of projects moving forward remains modest and Japan’s effort to legalise casinos fails to materialise”. It noted: “Incheon International Airport is one of the most heavily trafficked airports for international passengers in the world.”
The rating agency added that casino resort operators in Incheon could also profit from locals using their non-gaming amenities.
It added: “Non-gaming amenities such as retail and entertainment will appeal to the approximately 25 million people living in the greater Seoul area.”
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China