Inside Asian Gaming

INSIDE ASIAN GAMING | September 2011 14 Asian Gaming 50 – 2011 Genting’s original casino operation— at Genting Highlands in Malaysia and nowadays branded Resorts World Genting—is literally and metaphorically close to a precipice. Political sensitivities about casino gambling in Malaysia—with its majority Muslim population—mean that RWG’s licence has to be renewed on a quarterly basis. Things could be worse. In June 2008, the country’s Islamic Party proposed introducing a monthly renewal, despite the fact that Muslims are not allowed to use the facility in any case. No such doubts exist in Singapore. The city-state’s government made Genting jump through a lot of hoops to get a casino licence. But now that it has one, unless the company does something monumentally silly, it has the privilege of a casino duopoly with Las Vegas Sands Corp (LVS) for a 10- year period in a growing market worth around US$6 billion this year according to some analysts’ estimates. That has helped transform Genting into one of the world’s biggest casino operators, complementing its land based operations in the Philippines and the United Kingdom, and giving it the political leverage to build a business in the United States. In addition, Genting has a casino ship business run from Hong Kong in which it has recently been reinvesting. Genting Singapore, the Singapore-listed entity that runs Resorts World Sentosa, doesn’t offer investors as much operational detail in its results as does its Singapore rival Marina Bay Sands (MBS) run by LVS. But it has recently shown a degree of volatility in its results. CLSA Asia-Pacific Markets estimates hold-adjusted EBITDA (i.e. EBITDA accounting for variations in house win-rate on games) for RWS in the second quarter at US$310 million to US$315 million. On an ‘apples with apples’ basis (with the caveat that quarter-on-quarter comparisons are less reliable than year-on-year ones because of seasonality), that represents a 29% drop on the first quarter hold-adjusted EBITDA, which was US$447 million. It can’t be accounted for by any drag effect caused by Genting Group’s UK casinos operation, Genting Casinos. That business used to be part of Genting Singapore, but was spun 3 (2) Lim Kok Thay Chairman and CEO Genting Berhard off into a separate unit in a sweetheart deal within the group last year. Genting Chairman Lim Kok Thay and much of his senior management team are Malaysians of Chinese ethnicity. It must be somewhat disappointing for Mr Lim, therefore, that his executives’ direct and detailed knowledge of a big segment of the target clientele hasn’t enabled RWS to go way out in front of its rival MBS when it comes to Singapore market share. That’s particularly the case given that RWS had first mover advantage in a market where Singapore nationals and permanent residents are required to pay a venue- specific levy of S$2,000 per year or S$100 per 24-hour period in order to enter the casinos. RWS opened in time for the busy Chinese New Year holiday in February 2010, while MBS didn’t have its soft opening until April and wasn’t fully operational even in its phase one stage until June that year. MBS also has a senior management team largely composed ofWesterners, and has had lessmanagement continuity than RWS. In January, the then MBS CEO Tom Arasi, who had guided the project through to launch and early growth, resigned after only 18 months in the job. Yet currently the two Singapore resorts appear to be neck and neck in terms of gross gaming revenue. CLSA recently estimated Genting Singapore achieved GGR of US$740 million in 2Q 2011, compared to MBS’s US$745 million in the same period. In Macau, the Chinese-run casino operators SJM and Galaxy are noted for their ability to tread carefully with the regulatory authorities and lawmakers. RWS hasn’t been quite as nimble in Singapore, though admittedly the Singapore lawmakers and regulators have a reputation for exactitude. In May, Singapore’s Casino Regulatory Authority (CRA) fined Genting Singapore a total of S$530,000 for four breaches of its rules at RWS. The property was found liable for reimbursing the entry levy payable by Singapore citizens and permanent residents. It was also fined for failing to ensure that casino surveillance footage from several cameras was retained for the specific period required by CRA, the regulator said in a statement. Both examples suggest some systemic weaknesses in RWS’s management at the time of the breaches. There have also been allegations within the industry— strongly denied by Genting—that RWS has been less robust than it might be in policing its VIP table operations for signs of illegal junkets (i.e., third parties unconnected with the casino giving credit to high rollers for VIP play, in contravention of Singapore’s gaming laws and CRA rules). On the upside, phase two of RWS— including extra hotels and new leisure facilities—is due to start opening in the second half of this year. That may boost EBITDA in the second half, and give a lift to RWS for the busy Chinese New Year period in late January 2012. Genting has also been working assiduously on its regional and global marketing for its portfolio of casino businesses. In July, Genting Casinos, the group’s UK unit, announced a deal to sponsor the shirts of Aston Villa FC, a soccer club in the English Premier League (EPL). The significance of this is that the sponsorship