ASX-listed Silver Heritage Group finally launched hotel and casino operations at its new Tiger Palace Resort Bhairahawa in late 2017, having survived the 2015 earthquake, a fuel blockade on the Nepal-India border and an AU$19 million (US$14.4 million) funding shortage as a result of the delays. IAG spoke to Silver Heritage Managing Director and CEO Mike Bolsover about the Nepal-based project.
Ben Blaschke: How does it feel to finally have Tiger Palace up and running after such a long journey?
Mike Bolsover: In one word, fantastic. We have a great team and we have had tremendous support from the shareholder base – old and new – to get us to this stage. It has indeed been a lengthy journey with the various events in Nepal – the tragic earthquake in 2015, the new constitution later that year and the related fuel crisis, plus the intensity of the front-door IPO process in Australia in 2016.
Personally, on the home front my wife Rebecca and I have had three children since the company purchased the first parcel of land in 2014! But there is no time to rest. This is the start of the operational phase now following the successful build, receiving a 5-star rating and the licensing of the resort, hotel and casino respectively in the last four months of 2017. We are now right back into managing gaming operations where we have a long and successful track record and deep expertise.
BB: You opened the hotel in September and launched casino operations in late December. What sort of numbers have you been seeing through the property over these first few months?
MB: We had a full car park on the third night of operations, which was New Year’s Eve, and 412 guests. The early feedback has been very positive indeed. There really is nothing like Tiger Palace in this part of the world. On the non-gaming side we have large MICE and wedding events plus a car launch confirmed already and the future looks bright. The grand opening will be on 16 March 2018.
BB: You’ve obviously still got some ramp to come. What other features – both gaming and non-gaming – are still to come and how do you expect those to impact the business once operational?
MB: We have opened with the planned 100 rooms and two villas and we have converted some event space already to cater to the demand for MICE. The gaming floor has mass, premium mass and VIP but we decided to delay the opening of the private gaming facilities to ensure that we used empirical data to inform the fit out and open the rooms ready for the specific demand from those customers preferring a private gaming experience.
We have 44 tables on the floor today with 34 in main gaming and 10 in premium gaming and VIP. We have another eight tables planned for private gaming that can also be added to the main floor in any event, so we are able to have all 52 tables readied to meet demand at any time.
BB: Can you tell us a bit about the main features of Tiger Palace as of the turn of the year?
MB: The 100 rooms currently operational include four room types in the hotel (Suite, Junior Suite, Superior and Deluxe) plus the two additional villas. The rooms are set on two levels around a huge feature swimming pool which winds between the hotel blocks and frames the center of the hospitality area which is Cabana Avenue (a pool bar and grille) with space for 120 covers.
The other food and beverage outlets are Ramro Chowk (24- hour dining) with approximately 80 covers and within the casino we have Jackpot Cafe with approximately 50 covers. In-room dining and a la carte served to players at the tables in the casino completes the current food and beverage options, serviced from three separate kitchens.
To service the MICE and weddings markets we have a main ballroom, five meeting rooms and a large outdoor wedding and banquet area, at the end of which we have an old historic Rana Temple for ceremonies and vows.
BB: Tiger Palace is obviously situated to take advantage of the massive Indian market just across the border. What can you tell us about the resort’s surrounds?
MB: Bhairahawa is in the flatlands of the Terai, which is 100 meters above sea level and it is the only 24-hour border crossing between India and Nepal. It has a domestic airport which is soon to become Nepal’s second international airport and will take at least 30% of all international inbound air traffic by the end of 2019. It is already very well frequented as it is just 30km from the birthplace of Buddha – the UNESCO World Heritage Site of Lumbini – and 120km from the incredible wildlife zone of Chitwan, also a UNESCO World Heritage Site containing tigers, black rhino and elephants.
In terms of the selection process I think it is both an art and a science. We have been in Nepal as a company since 2011 and I myself have been coming to Nepal since 2003. All that time Silver Heritage has been involved in casinos along the various popular border areas in Asia, which include Thailand-Laos, Thailand-Cambodia, Laos-China, China-Macau and Vietnam-Cambodia. We placed and managed gaming machines in various licensed properties along the Nepal-India border and in the capital Kathmandu for a while before we selected Bhairahawa as the location for our first integrated resort, Tiger Palace Resort Bhairahawa.
BB: Exactly what regions of India and what sort of population base are you looking at as your primary target market?
MB: The principal drive-up target market is the 16 million middle class Indians living within a six-hour drive of Bhairahawa, principally those living in the largest state in India – Uttar Pradesh – which has a population of 215 million. That’s the equivalent of the population of Brazil.
Having said that, we have already had customers from China, Indonesia, Thailand and Vietnam among others as the property is a great base for tourism in southern Nepal and northern India. Once the international airport opens in 2019, customers and players will be able to fly directly from India, China, Thailand, Malaysia and beyond to an international airport located just 15 minutes from Tiger Palace Resort. Indians do not require a visa to enter Nepal and recently the Nepal government agreed to issue free visas to Chinese tourists to generate accretive demand in the Nepal tourism market. We also have a great feeder property in its third year of operation at the Shangri-La Hotel in Kathmandu known as The Millionaire’s Club & Casino.
BB: What is your primary player segment?
MB: We are mass and premium mass focused, but we already have the ability to add VIP play in the raised floor section when required. The private gaming areas will be for various uses including VIP.
BB: Do you see India ever truly opening up to gaming?
MB: India is already open for gaming but the casinos are in two states and in hard to reach places such as Goa – where players need to take tenders to riverboats moored off the coast – and in the highlands of Sikkim. Daman has been slated to open for the last five years and will likely do so in the future with the principal draws being Maharashtra and Gujarat.
BB: Let’s take a look at Nepal itself. What have you found to be the pros and cons of operating in a developing nation like Nepal?
MB: Nepal is a beautiful country with so much to offer in terms of tourism, from the peaks of Everest to the jungles of Chitwan and the Kathmandu Valley. There is so much great trekking and adventure tourism as well as eco-tourism and safaris. The people and the culture make it a great place to work and the fact that everyone speaks English means that we can have interactions with the government, all ministries and the central bank in English. It’s very different in that regard from places like Vietnam or China where you would need to know the language yourself fluently or require a translator.
From a construction perspective it has been harder due to the fact that Nepal is land-locked. Logistically, even though the border area with India is mainly flat and low-lying, all goods must come through Kolkata unless they are flown in, via Kathmandu.
BB: There were obviously some well-publicized delays and problems that impacted completion of Tiger Palace. Can you run through what happened?
MB: The principal reasons were force majeure including the earthquake in 2015 and also political with a fuel blockade and a new constitution introduced at the end of 2015.
BB: When did you first realize that the initial deadline and budget for completion of Tiger Palace were becoming unrealistic?
MB: We held our November 2016 board meeting at Tiger Palace and the contractors and Project Director still maintained at the time that the planned end-March date was achievable. But by the middle of January 2017 it was clear that logistics and pace of completion were dragging the timeline.
We held our January board meeting in Sydney and immediately commissioned an independent study to confirm fears raised at that time. As soon as we believed we knew, we informed the market.
BB: In May last year your Chairman noted in his AGM address that the company’s credibility was an issue. What went wrong to reach that point?
MB: The delays relating to the completion of Tiger Palace and the dip in performance at Phoenix during the second half of 2016 had likely impacted credibility. Since then we have bounced back on all fronts and, having raised additional capital, we completed the build and opening of the hotel and the casino at Tiger Palace by the end of 2017. We have achieved all of the things we set out to do in mid-2017, including our 5-star rating, casino licence and 2017 opening.
BB: There was at that time an AU$19 million funding gap. On a personal level, did you ever fear that you might not be able to secure the required funding for completion?
MB: Never. The IPO was tough enough and a good experience to prepare me and our broader team. The support of the long-term shareholders and the belief from the newer shareholders in the story, in management and in the fundamental proposition meant that it was a case of hard work, application and unwavering effort to get the job done.
BB: What was the reaction from investors at that time and what feedback have you received more recently?
MB: It wasn’t great at the time but is obviously much better now. Our shareholders are very knowledgeable and understand the fundamental proposition and changes we made. They backed us to complete and open in the revised time period and we have done that.
BB: Can you talk about your local partners – who are they and what is their level of involvement?
MB: We have two local partners who are very experienced and well regarded in the tourism and the property and banking spaces respectively. They own 10% of the Casino Management company Silver Heritage Management Kathmandu Pvt. Ltd (SHMK). It is a legal requirement for the casino manager to be partially Nepal-owned.
BB: Outside of the integrated resort offering, do you engage in other activities with local communities in Nepal?
MB: Yes, we have a great CSR program across the country and locally in Bhairahawa. These activities are conducted via two main conduits, being the Nepal Youth Foundation –also known as Olga’s Promise – which is an incredible charitable entity focused on helping women and disadvantaged children in Nepal founded and run by 92 years young Olga Murray, and 3 Angels Nepal. 3 Angels Nepal, in partnership with Captivating International, have set up watch programs at each border crossing between Nepal and India to prevent human trafficking. We have also worked with the Bradman Foundation and Dream Cricket working with disabled children in Nepal.
BB: How many staff are employed at Tiger Palace and how many of these are locals? Is staffing in Nepal difficult?
MB: We now have over 450 local Nepali employees at Tiger Palace in the hotel and hospitality and casino areas, bringing our total employee number in Nepal to over 800. The majority are local. They are capable and hardworking. Part of our commitment to the government and the people of Nepal was a skills transfer and injection of knowledge and expertise.
BB: For those yet to visit, how accessible is Tiger Palace? What are the main access routes and options?
MB: We have incredible access both by air and by road. We chose the city of Bhairahawa in 2014 after much deliberation and based on our experience in Nepal with gaming machines along that particular border since first launching our Nepal operations in 2011.
The government has almost completed a major infrastructure project which is a 24km stretch of six-lane highway from the border to the city of Butwal and that highway runs alongside the access to the resort. It is the most frequented border post between India and Nepal, with 24-hour crossing for pedestrians and 18-hour crossings for vehicular traffic. There is an Indian domestic airport at Gorakphur just 100km to the South. It is a four-hour drive from the huge city of Lucknow, which boasts an international airport, and adjacent to the largest Indian state by population, Uttar Pradesh.
The domestic Nepal airport – Gautam Buddha Bhairahawa Airport – is only 15 minutes from the resort and is scheduled to complete the black-topping of the new 3,200-meter runway in the first half of 2018. Customs and immigration facilities are due to be finished at the end of 2018. This will be Nepal’s second international airport and the plan is for the airport to take 30% of all international air traffic.
We liken the situation here with its nearby Lumbini, the birthplace of Buddha, to that of Siem Reap in Cambodia with its nearby Angkor Wat, which has been a tremendous success as Cambodia’s second airport and main tourism destination.
BB: What are the terms of the casino license and are there exclusivity clauses around it?
MB: The licence is perpetual with annual renewal each July, in line with the Nepal tax year. We won the first license for the casino at the Shangri-La Hotel in February 2015 and have successfully renewed it three times, so we are very familiar with the process.
BB: Are there future expansion plans for Tiger Palace?
MB: For sure, we have plans to cater to the demand as it grows and can react quickly and efficiently. We currently have 10 hectares which are 100% owned by Silver Heritage via its 100% owned subsidiary and have built on just over half, leaving approximately five hectares on which to expand. We also have a partner who owns land to the north-east and the south, contiguous with Tiger Palace Resort, upon which we could expand. We have construction drawings for two more hotels of 100 rooms and 200 rooms respectively, so we are very well prepared for the next phase of room expansion. The casino which has opened with 44 tables and 216 EGMs has room for expansion in table games within the already-built gaming floor area too.
BB: I note that recent updates on the ASX refer to a site for a possible Tiger Palace 2. Can you provide some details on this?
MB: We have paid a US$3 million deposit on land in the eastern region where we had previously had experience managing some gaming machines, in a place called Jhapa/Kakkarbitta adjacent to the Indian border. The nearest Indian city is Siliguri, a metropolitan area of over two million people, just 20 minutes by car. This city has great domestic Indian airlift and an international airport. The entire land bank is approximately 50% larger than Tiger Palace Resort Bhairahawa.
BB: You also have interests in Kathmandu and Vietnam, but how important is Tiger Palace to Silver Heritage and the overall bottom line? Is Silver Heritage interested in participating in a Vietnamese IR in the future or other Vietnamese expansion opportunities?
MB: Vietnam and Kathmandu are great assets though most of our future growth is driven by the Tiger Palace proposition. We have been operating in Vietnam for over seven years and know the market extraordinarily well. We have a great partner in Phoenix International and we have also presented credentials and concept plans for a partnership with the owners of Laguna L?ng Co in the past. No decision has been made yet.