Inside Asian Gaming

September 2011 | INSIDE ASIAN GAMING 55 46 (41) Chen Lip Keong Founder and CEO NagaCorp NagaCorp is the owner and operator of Cambodia’s biggest casino, NagaWorld, and the only one licensed within a 200-kilometer radius of the country’s capital, Phnom Penh. Its business model is based on three key principles: long-term exclusivity—it has an exclusive gaming concession for the capital region until at least 2065; low capital and labour costs relative to the region; and a marketpositioning that is carefullypitched— way below the stratospheric levels of VIP roll seen in Macau casinos’high roller rooms and the size of bets seen on the Macau mass floors, but well above the cheap and not-so- cheerful gambling operations seen in some of Cambodia’s border casinos. NagaWorld seeks to be the pre- eminent Asian casino resort outside Macau and Singapore. It aims to achieve that by pursuing low- to medium-level VIP business with check-in upper limits typically of US$25,000. This helps to mitigate the hold volatility risk typically seen with the Asian VIP table game of choice—baccarat. It has also been working on a revenue share basis with slot and electronic game operators to drive slot handle in the mass market. The strategy shifts market risk related to product performance onto the slot operators, giving them incentives to source and operate only the top-performing games. NagaCorp, led by Chen Lip Keong, has been aggressively pursuing its expansion ambitions. It does no harm that Dr Chen is a personal friend of Cambodia’s primeminister Hun Sen. NagaCorp was the first company in modern times to list on an international bourse—the Hong Kong Stock Exchange. It has also been successful in generating some analyst coverage—an important element in the battle for global visibility with investors. In pursuit of its ambitions for a place at the top table of Asian casino resorts, NagaCorp in June announced a deal with its CEO to expand its facilities. Within a three- to five- year period, two projects will be developed next to NagaWorld by Dr Chen, NagaCorp’s majority shareholder, and then acquired by Naga upon completion. The projects are NagaCity Walk, a two-level pedestrian mall linked to the existing NagaWorld site, and an integrated resort complex, which will include hotel rooms, shops, and convention facilities. Investors might be interested to note that the latter facility will be known as the ‘TSCLK complex’—which is short for ‘Tan Sri Chen Lip Keong’; Tan Sri being an honorary title granted to Dr Chen by his native Malaysia. The reasons these two projects are being developed independently by Dr Chen rather than directly by NagaCorp are—according to company sources—that land grants for casino projects are politically sensitive in Cambodia. It made more sense for the government to do the land deal personally to Dr Chen as thanks for his charitable and other public works in Cambodia, said sources. The combined development costs for TSCLK and NagaCityWalk are expected to be US$369 million. It comprises US$275 million for TSCLK and US$94mm for NagaCity Walk. On completion, Naga will acquire the projects from Dr Chen, in exchange for shares or convertible bonds to the capital value of the project. After conversion of the instrument issued to Dr Chen, minority shareholders in NagaCorp will be diluted by approximately 42%, though analysts point out that shareholder dilution should be quickly offset by increased earnings generated from the new project. Union Gaming said in a note to investors in June that the 7,300 square metres of extra gaming space allocated to TSCLK should accommodate between 200 to 250 table games and 500 to 600 slots. The research house said that at current table win per day of US$2,300 and slot win per day of US$200, this would imply annual gaming revenues of around US$210mm from the new facility at 2011 prices. Union Gaming estimated NagaWorld’s gaming revenues from its existing facilities in 2011 would be US$217 million, less third-party slot operator fees. The latter are performance-related and can rise to 30% of slot revenue. The number of international tourists to Cambodia is on the rise. In the first quarter of 2011, Cambodia’s Ministry of Tourism reported a 13.9% increase in international visitors year-on-year. Of the 778, 467 visits, 735,132 (94%) were related to leisure travel. The majority of them are by air travellers using Phnom Penh as the entry port, boding well for tourism and entertainment businesses in the capital. at a private buyout of PAGCOR. The proposal came from a quickly- arranged consortiumof regional investors led by RamongAng,Vice Chairman of the Philippine consumer and brewing conglomerate, San Miguel Corporation. The aim of the buyout was clearly to make money for the investors, but with the supposed side-benefit to the public purse of introducing more commercial discipline to PAGCOR and therefore an improvement in the revenue it raises for community causes and for the government. A purchase price for PAGCOR of US$10 billion was mentioned—equal to PAGCOR’s anticipated annual income over 15 years. It was a tempting amount of cash for a central government often fighting an uphill battle to collect taxes. There were serious questions about whether the buyout group could have actually come up with the money. But the fact the issue was raised at all was a sign of a change in political mood in the Philippines after the election of a reforming president—Benigno Aquino in May last year. President Aquino indicated early in his administration that all options were on the table regarding the future regulation and structure of the country’s gaming industries. Mr Benitez—who by then was a member of congress’s influential Government Enterprises and Privatization Committee—spoke out against selling off PAGCOR either in part or in whole, citing the need for PAGCOR’s independence as a regulator. Interestingly, this is almost a mirror of the argument made by the pro-privatisation lobby. They point out that it’s hard for PAGCOR to discharge its regulator role impartially when it also has commercial interests in running a large part of the country’s casino industry—a part that’s actually in competition in some cases with privately-owned casinos. Although Mr Benitez has officially exited the gaming industry in order to join congress, some sceptics have questioned via the country’s media his commitment to politics beyond advancement of any future commercial interests. In May this year, Mr Benitez issued a rebuttal via the press, denying media reports that he was frequently missing from debates during sessions of the House of Representatives. Congressman Benitez is ranked as one of the richest men in the Philippines—a country where stardom in sports or acting, or in business, often leads to a political career. National boxing heroManny Pacquiao recently joined Mr Benitez in congress as representative for Sarangani district. One day, it’s possible Mr Pacquiao and Mr Benitez may both separately get a crack at the top job—as president of the republic.