Genting Singapore Plc is to book “a modest gain” of around US$39 million from the sale of its 50-percent stake in a casino project under construction on Jeju Island in South Korea, says Union Gaming Securities Asia Ltd.
The casino operator announced on Friday it was selling its participation in the Jeju Shinhwa World project – previously known as either “Myths and History Park” or “Resorts World Jeju” – to joint venture partner Landing International Development Ltd. The disposal is to be completed in the first quarter of 2017, the Singapore-listed firm stated.
“Genting Singapore will receive a total of US$420 million from Landing International relative to Genting Singapore’s US$381 million in contributions” to the project, Union Gaming analyst Grant Govertsen wrote in a Sunday note.
He added: “The move makes Genting Singapore the second international operator to walk away from Jeju following Bloomberry Resorts Corp’s decision to sell its Jeju casino in June (although seemingly with ongoing difficulties in finding a buyer).”
In the Friday announcement, Genting Singapore stated it was abandoning the Jeju project to focus on its Resorts World Sentosa casino resort in Singapore. The firm said it was also following up potential investment opportunities in Japan if the country legalised casino gambling.
“Recent news reports from Japan are encouraging with regards to the advancement of the process to debate and pass the integrated resort promotion bill,” Genting Singapore stated in the announcement. The bill would legalise casino gambling in Japan at a conceptual level.
The firm added: “The group is optimistic that this bill will be enacted in the near future. When this happens, significant resources will need to be devoted to position the group as a strong candidate for the bidding process [for a casino licence]. This opportunity is of significant value to the growth of the group.”
Landing ‘optimistic’ on Jeju
In a Friday filing to the Hong Kong Stock Exchange, Landing International said it remained “optimistic [about] its business and [the] prospects of the Jeju project”.
It added: “Given the expanding tourism and property market in Jeju, the company believes it will be advantageous for the group to obtain 100 percent control of the development and management of the Jeju project and to enjoy the absolute economic benefits from its entire future earnings.”
Landing International stated in the filing that – following the completion of the acquisition of Genting Singapore’s stake – it would “review the future financing needs of the Jeju project and determine the best financing source therefore.” Landing International will use debt financing to pay for Genting Singapore’s stake in the Jeju project, it stated.
Investment bank JP Morgan said in a Monday note that the transaction made “a lot of sense” for Genting Singapore. “We’ve long argued that this project isn’t going to be value accretive anyway,” stated analysts DS Kim and James Sullivan.
They added: “We view [South] Korea’s foreigners-only casino model as inherently unattractive and volatile, given the lack of a local feeder market.” 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.
Mr Kim and Mr Sullivan said the sale of the stake “removes the overhang on a lacklustre (if any) return from the Korean project” from Genting Singapore’s shares. They also noted that “the company actually made 10-percent return on this investment.”
In his Sunday note, Union Gaming’s Mr Govertsen said that Genting Singapore’s “high-profile decision to walk away” from Jeju would impact the value of existing casinos on the South Korean island.
Other factors mentioned by the analyst as hurting the valuation of existing Jeju casinos included: “China’s recent harder-line stance on overseas VIP…; the significant domestic political turmoil surrounding [South] Korean President Park [Geun-hye]; [and] that new Jeju integrated resort supply (now just one year away) will put the squeeze on existing casinos.”
According to Union Gaming, Jeju has eight “very small casinos”, which generated US$178 million in gross gaming revenue in 2015, a decline of 6 percent from the previous year. There are three casino properties under construction on the island: Jeju Shinhwa World; the Dream Tower project opening mid-2019 and being developed by South Korea’s Lotte Tour Development Co Ltd; and a project promoted by Hong Kong-listed New Silkroad Culturaltainment Ltd.
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"The demographics of Tokyo, Yokohama, and Osaka (possible Japanese urban gaming resort locations) warrant larger gaming floors [than 15,000 square metres]"
Analyst at investment research firm Morningstar