The approximately 700-percent increase in monthly rolling chip turnover recently seen at the Tigre de Cristal casino resort in the Russian Far East – compared to monthly roll at the venue’s launch in November 2015 – was due in part to the arrival of some Macau-based junkets, a spokesman for the property’s majority owner told GGRAsia.
“It [the growth] is attributable to the continuing ramp up of the existing junkets we had at the property, as well as the signing of a couple of Macau-based junkets in late June,” said Eric Landheer, director of corporate finance and strategy at Hong Kong-listed Summit Ascent Holdings Ltd.
Summit Ascent is controlled by Asian gaming entrepreneur Lawrence Ho Yau Lung, chairman of Melco Crown Entertainment Ltd.
In its interim report for the six months to June 30, published in September, Summit Ascent also gave an update on the business beyond the reporting period. It stated the monthly rolling chip turnover at Tigre de Cristal had gone from HKD258 million (US$33.3 million) in November 2015 to HKD2.0 billion in July 2016, and HKD2.2 billion in August 2016.
“This validates the key aspect of our investment thesis – that the Primorsky Krai Integrated Entertainment Zone is the ideal location to capture the drastically underserved gaming demand from Northeast Asia,” said the firm in its interim report. The Primorsky Krai Integrated Entertainment Zone is a special economic zone near the Pacific port of Vladivostok designated by the Russian authorities as a site for several casino developments.
Mr Landheer had explained in September last year – prior to the first-phase launch of Tigre de Cristal – that the property’s strategic location meant 300 million Asian consumers lived within a three-hour flight of the venue, including 130 million people living in the north of China.
The first phase of Tigre de Cristal – including 121 hotel rooms – had a soft opening in early October 2015, and an official one in November that year.
“Currently we are at or close to 100 percent [hotel] occupancy on most weekends,” Mr Landheer told us in an interview. “What’s been proven from the visitation we have had so far, is that the proximity and location argument has been validated.”
Asked from where the customers were coming, Mr Landheer declined to give precise details, but stated: “Some on the VIP side are people that in the past may have gone to [South] Korea; may have occasionally gone to other destinations.”
The executive said the property was offering its junket partners the option either of rolling chip commission or a share of revenue; the latter assigning to junkets potentially greater volatility in earnings than the former.
Mr Landheer additionally said that Tigre de Cristal was not advancing credit to its junket partners.
“We are not providing credit to the junket operators. That is one major difference between us and the majority of other casino operators in the Asia Pacific region,” he stated.
“Deposits are placed with us, and then they are rolled. Once that deposit is fully utilised, an additional deposit would have to be made… Therefore we have virtually no potential debt collection or issues on that front,” he added. In Macau, credit default by players was recently on the rise, several investment analysts have said.
Mr Landheer explained Summit Ascent’s reasoning regarding the decision not to get the house directly involved in issuing gambling credit for VIPs.
“It was just to maintain a prudent approach to the expansion of the business, and really minimise our risk exposure on that front. And we felt that we could do that [choose not to issue junket credit] while also consistently ramping up the business.”
While he declined to discuss the breakdown of costs for Tigre de Cristal’s junket business, Mr Landheer said: “We expect to maintain fairly attractive margins on the VIP business – somewhere in the range of 25 percent to 30 percent.”
Summit Ascent had told GGRAsia in the September 2015 briefing that the tax burden on Tigre de Cristal’s gaming operations was in a single-digit percentage. In Macau, there is an effective 39 percent tax rate on casino gross gaming revenue (GGR).
GGRAsia asked Mr Landheer if there was an update – regarding unattributed reports in the Russian media earlier this year – concerning a possible change to the tax regime for Russia’s casinos.
The executive said: “As we understand it, there is no concrete movement on that. To reiterate our position on the subject, we feel strongly that any such increase in the foreseeable future would not be a prudent or rational act by the Russian Federation, as it would discourage further development of the Russian Integrated Entertainment Zones and result in lower overall gaming taxes over the long term.”
Four licences have so far been granted for the development of casino resorts in Primorsky Krai, coupled with land grants totalling almost 1.4 million square metres (15.1 million sq feet). So far only Tigre de Cristal has been built and opened, but Hong Kong-listed casino operator NagaCorp Ltd is expected to be the next firm to open a venue in that Integrated Entertainment Zone. NagaCorp’s chairman has told GGRAsia that the construction programme is on schedule and the group expects to open its property there in the summer of 2018.
In the latest interim report, Summit Ascent said it expects to start construction of Tigre de Cristal’s phase two “in the second half of 2017, and open the first stage of our phase two for operations in the first half of 2019”. The company had said previously that phase two of Tigre de Cristal might open in 2018.
Mr Landheer told GGRAsia: “The plan now is to open up a portion of phase two in the second half of 2019; and then open up the remainder of it approximately a year afterwards.”
He added: “We want to maximise the opportunity, without creating overcapacity prior to the demand being there. I don’t think we always necessarily subscribe to the ‘Build it and they will come’ philosophy. While we think that’s potentially a valid philosophy depending on the market in which you operate, we are continuing to be measured and prudent in our expansion approach.”
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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