GGRAsia – Moody’s downgrade watch for Imperial Pacific Intl

Moody’s downgrade watch for Imperial Pacific Intl

Nov 29, 2016 Newsdesk Latest News, Top of the deck, World

Ratings agency Moody’s Investors Service Inc has placed the corporate family rating of Pacific casino investor Imperial Pacific International Holdings Ltd on review for downgrade.

It said in an announcement on Monday it had assigned a B2 rating – five levels below investment grade – to the group. In a September 13 announcement, Moody’s had said it had given the Hong Kong-listed group a provisional B2 rating.

“The review for downgrade reflects our concerns over Imperial Pacific’s lack of funding to complete its Grand Mariana project due to a delay in the issuance of the company’s proposed bonds,” said Kaven Tsang, a Moody’s vice president and senior credit officer.

The Moody’s note also cited concern associated with “the company’s management of money laundering risk to ensure that its gaming business in Saipan is sustainable”.

Imperial Pacific has the right to an exclusive casino licence on Saipan, a Pacific island that is the main land mass of the Commonwealth of the Northern Mariana Islands, a U.S. jurisdiction.

The firm is presently building a permanent facility to replace its current temporary one (pictured). Moody’s said in its Monday note this represents a US$550-million investment for a casino and a 365-room hotel on Saipan scheduled to open for business in 2017.

On November 14, Bloomberg News had reported that the volumes of cash wagered at Imperial Pacific’s current temporary Saipan casino were “drawing the attention of law-enforcement officials” in the United States.

Imperial Pacific has strenuously denied that claim and said in a Hong Kong filing on November 15 that it was seeking legal advice and reserved the right to pursue legal action against an “unfounded report”.

Shen Yan, president of global capital markets at Imperial Pacific, subsequently told GGRAsia in a telephone interview that it was “impossible” for its casino operation to be facilitating capital flight from China and that the firm and its casino operating unit Best Sunshine International Ltd, led by former Macau casino executive Mark Brown, complied with all U.S. laws and regulations.

Edward Deleon Guerrero, executive director of the Commonwealth Casino Commission, was later quoted by local media as saying if anti-money laundering inquiries were taking place on behalf of the U.S. federal authorities, they were likely to be routine.

Bonds planned

Moody’s said in its Monday announcement, in reference to the new casino under construction: “The investment will be funded mainly by… proposed bonds. While the bonds have not been issued, the major shareholders have been providing interim shareholder loans to keep construction going.”

On Tuesday Bloomberg News had reported Imperial planned to sell as much as US$650 million in bonds to pay for its Saipan project.

Moody’s Monday note said: “In Moody’s view… shareholder funding is a temporary solution and falls short of the amount to complete the project.”

Mr Tsang himself stated: “The delay in the [bond] issuance could also trigger the risks of cost overruns and a potential termination of the company’s gaming licence.”

He further noted: “The former concern will potentially result in more debt funding and the company’s debt leverage could then exceed the original budget.”

Moody’s Monday announcement said it had withdrawn its provisional (P)B1 senior secured rating to the proposed U.S. dollar bonds to be issued by an entity called Imperial Pacific International (CNMI) LLC, “because they have not been issued as planned”.

In a filing to the Hong Kong bourse on September 13, parent Imperial Pacific had said the pricing of the notes, including the aggregate principal amount, the offer price and the interest rate, were to be determined through a book building exercise to be conducted by Credit Suisse AG, Hong Kong based SC Lowy Financial (HK) Ltd and Jefferies LLC.

As of Tuesday afternoon, no further information on the bond exercise had been issued to the Hong Kong Stock Exchange by Imperial Pacific.

Imperial Pacific’s shares closed at HKD0.11 (US$0.0142), down 0.91 percent, on Tuesday. The one-year return on the stock was -55.69 percent as of Tuesday, according to Bloomberg data.