Inside Asian Gaming

INSIDE ASIAN GAMING | October 2011 24 of capital expenditure. One important motivation for Taiwan to legalise casino gaming is to harvest tax revenue and tourism dollars from domestic players who are currently going overseas to gamble. Another one is to get mainland Chinese to come and gamble, thereby subsidising the Taiwanese treasury. The mooted sites are three outlying island archipelagos—Penghu, Matsu and Kinmen. They are far enough away from theTaiwanese mainland to create a disincentive for the locals to visit regularly, but near enough to China—especially in the case of Kinmen next door to Fujian province—to be enticing for mainlanders. The politics of this will not have gone unnoticed by Beijing. Since the end of China’s long civil war in 1949 the People’s Republic has had a long list of political and diplomaticgrievancesagainstTaipei—despite a thawing in the cross-Straits relationship in recent years. Most of the art and cultural treasures from Beijing’s Forbidden City are actually in a museum in Taipei—hauled off by modern Taiwan’s founder Chiang Kai-shek as his nationalist forces retreated from Mao Zedong’s communist troops. For Taiwan to empty the pockets of mainlanders again— this time via Taiwanese baccarat tables— could look to some PRC citizens like a case of adding insult to injury. Taiwan’s Ministry of Transportation and Communications (MOTC)—which oversees the country’s Tourism Bureau—released its draft casino legislation on 1st April. The MOTC’s next step will be to secure much- needed support among the residents of the offshore islands. That could be a drawn out process.Taiwan’s parliament voted to legalise casinos on its offshore islands back in January 2009, but the plan has been caught up in some political wranglingover local referenda called among the islands’ populations. The most publicised casino referendumwas held in Penghu in September 2009, and resulted in a ‘no’ vote. By law, Penghu will not be able to hold another referendum on the issue until September 2012 at the earliest. The good news for overseas operators and investors is that the draft bill for casino regulation envisages the casinos as being part of large-scale IRs, with the winning bidders for the two licences selected largely on the basis of their investment commitments and previous experience of developing successful gaming resorts. The successful bidders will also get a good run at the market. After the two permits are awarded, there will be a 10-year moratorium on the awarding of any more. And the licence period will be 30 years. The not-so- good news is that the bidders will have to pay an upfront franchise fee of NT$3 billion (US$97.8million) plus a licence fee of NT$200 million for every three years of operation. The operators are expected to face a gaming tax rate (excluding corporate tax and other fees) of 12%-15%. Name a major casino operator and the chances are it’s been linked (whether via journalistic imagination or market rumour) with Taiwan’s casino plans over the course of the past two years. But as Macau’s first round of issued casino licences come ever-closer to their early redemption date (2017 is the starting point) it will arguably get harder for Taiwan to attract the industry big guns. Those LasVegas operators whomissed out onMacau first time round might be wary of spoiling their chances a second time by cosying up to Taiwan and thereby upsetting Beijing. And Taiwan’s unusual plan for an offshore industry could also prove a hard package to sell to investors—especially if they have to stump up more cash for transport infrastructure to bring customers in. Hardly a week goes by without someone stepping forward to claimthey’re building an IR inVietnam. Onlyone company really is, and that’s Asian Coast Development Ltd (ACDL) at the Ho Tram Strip. This prime beachside location in South Vietnam is around 120 kilometres north of Ho Chi Minh City and its population of 10 million—though as the law currently stands Vietnamese nationals will not be allowed to use the casino facilities unless they hold foreign passports. ACDL also has real backers. A syndicate of Vietnamese banks is providing the debt. The equity is coming from New York based Harbinger Capital Partners; the US regional casino operator Pinnacle Entertainment which in May took a 26% stake for US$95 million; and from a recent private offering that raised US$237.4 million according to a filing last month with the US Securities and Exchange Commission. Subscribers listed for the private offering included Lloyd Nathan, CEO of ACDL (and former President of Global Gaming Development for MGM MIRAGE), and Anthony Sanfilippo, a director of ACDL and the Chairman and CEO of Pinnacle. The first stage of the Ho Tram Strip, under the branding of MGMGrandHoTram, is due to open in the first quarter of 2013. It will be the first of five planned resorts to be developed along the coastal strip by ACDL and its partners. Phase one of MGM Grand Ho Tram itself, will feature a 13,600 square metre casino with 90 live table games and 500 electronic games, as well as a five-star hotel with 541 rooms. Sources spoken to by IAG have given conflicting accounts of gaming tax rates in Vietnam, but a consensus is that mass-market play is taxed at approximately 30% and theVIP trade at approximately 14%. The second phase of MGM Grand Ho Tram will see a further 500 electronic games added to the casino offer, another 559 hotel rooms and villas, plus a full range of retail, dining and conference facilities. There will also be an 18-hole golf course designed by champion golfer Greg Norman. There is talk about two other consortia building two further IRs in Vietnam. One on the central coast near Da Nang, and one on the northern coast at Halong Bay. So far there’s been no action. So although there’s no clarity yet on whether the Vietnamese government is going to open up the market to domestic players, it does seem that the Ho Tram Strip will be the only IR project within the country for at least several years to come. Opulence—howMGM Grand Ho Tram phase one will look Vietnam Cover Story