Nasdaq-listed Macau VIP gaming room investor Iao Kun Group Holding Co Ltd has entered into a memorandum of understanding to expand its operations to Crown Perth Casino and Crown Melbourne Casino (pictured), in Australia.
Iao Kun on Monday announced in a press release that it entered into a non-binding memorandum of understanding. Under the agreement, it will acquire all of the profit interests of a person called Lou Kan Kuong that he obtains while acting as a junket operator at the Crown Perth Casino in Perth, Western Australia and for the Crown Melbourne Casino in Melbourne, Victoria. The two properties are run by Australia’s Crown Resorts Ltd, controlled by James Packer.
The statement identifies Mr Lou as an officer of Iao Kun who recently entered into agreements to act as a junket operator for the casinos on behalf of the company.
Iao Kun stated it expected to close the transaction by mid-May and to begin generating initial revenues under the agreement shortly thereafter.
“We are excited to take this first step toward expanding our operations and presence internationally and beginning to diversify our sources of revenue,” Iao Kun chairman Lam Man Pou said in a statement.
He added: “We remain committed to finding additional opportunities to expand our presence overseas.”
Iao Kun is a mid-sized investor in Macau’s government-licensed VIP gaming promoters, also commonly known as “junket operators”. It benefits from the economic activity of five VIP rooms in several casino resorts, including City of Dreams Macau. The latter property is owned and managed by casino operator Melco Crown Entertainment Ltd. Crown Resorts is one of two controlling shareholders in Melco Crown, with a stake of 33.8 percent as of October last year.
Iao Kun’s unaudited rolling chip turnover for the first quarter of 2015 was US$2.2 billion, down 54 percent in year-on-year terms, the company announced earlier this month. Market wide in Macau, accumulated gross gaming revenue – a different measure of the industry’s performance – for the first three months of 2015 stood 42.1 percent lower than in the same period in 2014, according to official data.
Hedge your bets
Iao Kun is not the first Macau junket investor to extend its operations to Australia. Suncity Group also has investments in VIP rooms in the country. The latter company controlled an estimated 25 percent of the Macau market’s VIP rolling chip turnover in 2014, according to a report published in late January by Daiwa Securities Group Inc.
Several recent announcements and news reports hint at a growing interest by Macau junket operators to expand their operations beyond the city, as the market environment there becomes tougher. Several investment analysts covering the gaming sector say VIP gamblers are staying away from Macau because they want to keep a low profile during the current corruption crackdown in mainland China. At least two junket operators have already reduced their operations in Macau.
The situation could get worse in the near future, as a reduction in the number of Macau VIP agents – the people that recruit the high roller players in mainland China and beyond, and crucially make it their business to know how much the players are worth and what they have in assets – may boost their bargaining power with the VIP gaming promoters. The warning was made by Iao Kun last week in its annual report.
The company reported a full year 2014 net loss of US$60.1 million, largely on a change in fair value on three high roller rooms acquired during the period.
In February, the Hong Kong Stock Exchange said it was unable to proceed with a review of the company’s application to list its shares in Hong Kong by way of introduction. “The company has elected to not continue with the application process at this time,” confirmed Iao Kun in its 2014 earnings statement.
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"If the [Macau casino] concessions are put up for bid, there will also be a lot of giant Chinese companies, some having nothing to do with gaming, which would like to take over these enormously successful casinos”
Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau