Caesars Entertainment Eyes Japan, Steps up on Korea

U.S.-based casino group Caesars Entertainment Corp is “pursuing a number of growth opportunities in Asia, including Japan,” Steven Tight, its president of international development confirmed to GGRAsia. He added the group would “release information at the appropriate time”.

The executive also said that Caesars was preparing to move forward on its previously-slated South Korea venture.

The news comes as it was confirmed on Tuesday that Caesars Entertainment Operating Co Inc – which runs some of the group’s most profitable venues including flagship properties in Las Vegas – is on the path to concluding its reorganisation under Chapter 11 of the U.S. Bankruptcy Code.

The operating unit sought protection from bankruptcy via the U.S. courts in January 2015, weighed by a US$18-billion debt load. It was part of a plan to cut group debt by approximately US$10 billion.

Mr Tight said that the operating unit’s anticipated exit from Chapter 11 “was great news”, adding that it “will facilitate Caesars’ continued growth plans in the [Asian] region”.

Following the passage on December 14 of an enabling bill to legalise casinos in Japan, a number of investment analysts have mentioned the possibility that foreign firms with expertise in casino operations might link – in likelihood as minority partners – with Japanese firms looking for new growth opportunities at home, in order to bid jointly for a Japanese casino licence.

Banking group Morgan Stanley said in a December 15 note that any casino venue or venues in Japan might only open after the year 2021, noting a second piece of legislation was necessary to establish the administrative framework of the industry.

The Caesars group hopes to have its South Korea casino project open before then.

Mr Tight confirmed to GGRAsia that the group was “looking to start construction in April” this year on the US$700-million gaming resort at Incheon, and was “currently targeting completion at the end of 2019 or early 2020”.

‘Right-sized’

The executive said that – despite the fact that currently under South Korean law nationals of that country are only allowed to gamble in one domestic casino, Kangwon Land – Caesars’ scheme would be “right-sized,” “supportable” and “without reliance on the Chinese VIP [gambler] market”.

In the first 11 months of 2016, the number of visitors to South Korea grew 31.2 percent year-on-year, to nearly 15.9 million, according to the Korea Tourism Organization. Mainland China supplied nearly half of all the visitors, or 7.53 million arrivals.

Analysts have noted that comparison of 2016’s total arrivals to 2015 is difficult, as visitor numbers in 2015 were negatively affected by an outbreak of Middle East Respiratory Syndrome in that country, resulting in visitor numbers that fell 6.8 percent year-on-year.

Mr Tight declined to disclose details of the expected annual rates of return on invested capital for Caesars’ Incheon resort, but said the group’s projections on the scheme were “quite reasonable”.

The resort site is at Midan City, in the northeast part of Yeongjong Island – one of the three regions under the Incheon Free Economic Zone – and approximately 15 minutes’ drive from Incheon International Airport.

The latter serves the South Korean capital Seoul, and handled nearly 5.03 million passengers in 2016, a year-on-year increase of 13.8 percent, according to Incheon International Airport Corporation. The figures, from Incheon Airport Immigration and Customs, exclude transfer passengers and domestic passengers.

Hong Kong-listed real estate developer Lippo Ltd had originally been – via a unit ultimately controlled by Lippo – Caesars’ announced partner on the Incheon scheme, but has since said it plans to exit.

On December 5, Hong Kong-listed mainland China real estate developer Guangzhou R&F Properties Co Ltd said in a filing one of its units would step in as 50:50 partner with Caesars Korea Holding Co LLC, in order to form a joint venture for the Korea project. The joint venture would then acquire LOCZ Korea Corp, the firm responsible for the development, construction and operation of the gaming resort.

Caesars’ tie-up with R&F is due to be completed by March 10, according to the December 5 filing.

“We are looking to start construction in April,” Mr Tight told GGRAsia. “Right now R&F is being licensed as a general contractor in Korea, so that takes a little bit of time.”

He added: “We’re now finalising the design elements so that when we break ground and start construction we can move forward as quickly as possible.”

US$280-mln equity

The budget for the project is US$700 million plus financing costs, said Mr Tight. Of the total capital cost, US$280 million will be via equity to be provided between the two partners.

“Our new joint venture equity structure is now agreed and the joint venture will jointly seek project financing in the coming months,” Mr Tight said.

GGRAsia asked the Caesars executive if the expected emergence of the Caesars operating unit from Chapter 11 protection would make any difference to the South Korea project’s access to capital markets.

Mr Tight said: “We [the Korea venture] are in good shape in any case, but certainly it will facilitate Caesars’ continued growth plans in the region. So it’s great news in any case. It’s nice to have the restructuring confirmed by the [U.S.] courts. In the case of Incheon we still had our financing pretty much locked up. But it [emergence of the operating unit from Chapter 11] can only help as we go forward.”

Mr Tight was asked to comment on Lippo’s statement that one of the reasons for it seeking to withdraw from the Incheon project was “the current outlook for the gaming industry in North Asia and the volatility of the global economy”.

He said: “I think there were a whole lot of other reasons – that Lippo was not able to go into – that drove their decision. I’ll let you follow up with Lippo if you want more perspective on that.”

Asked to comment on recent South Korean media reports that tensions between Seoul and Beijing could have an impact on Chinese tourism to South Korea, the Caesars executive noted: “In the long run we are confident that given the appeal of Seoul as a tourist destination, and the terrific infrastructure they have for tourism: with the airport expanding; with additional hotel inventory being built;… [and] the flow of foreign tourists, not only from China but also the rest of Asia and beyond, will continue to provide a strong source of tourists that we hope to welcome to our property in Incheon.”

Trump factor

Mr Tight was also asked whether his company was concerned about geopolitical risk for U.S. firms doing business in Asia if President Donald Trump – who was inaugurated on Friday – and his administration fell out with China.

The Caesars executive said: “How geopolitical developments might impact the flow of tourists to Incheon and to Korea, would ultimately have an effect on our project. Given the strong current tourism flow, we have a high level of confidence that we are going to continue to do well.”

He added: “I can’t comment on what’s going to happen with the new administration and how that relates to our relationship with China and how that impacts Chinese tourism to Korea. That’s beyond my area of expertise. But we’re excited to move forward.”

Two other foreigner-only casino resorts are slated for the Incheon area. Paradise City, by South Korea’s foreigner-only casino operator Paradise Co Ltd and Japanese pachinko operator Sega Sammy Holdings Inc, is due to open in April this year. The Inspire Integrated Resort scheme, by U.S.-based Mohegan Tribal Gaming Authority in partnership with South Korean chemicals manufacturer KCC Corp, and also involving Incheon International Airport Corp, is scheduled to begin operations by 2020. 

Caesars’ Mr Tight stated: “I think having the other brands gives more critical mass and more reasons for tourists coming to Incheon to spend time in integrated resorts in Incheon. We are confident, having the only strong international brand, that it will allow us to compete very effectively.”

He added: “We’re still very bullish on the opportunity in South Korea for us and in Incheon [in particular]. From our perspective, when you look at the macro numbers and you look at the number of tourists coming in [to the country]; our investment is right-sized for the market. We’re not investing as much as Paradise [and] certainly nothing like Mohegan Sun is talking about… I don’t know what their ultimate investment will be but the numbers they kicked around are twice what we are.”

He further noted: “We are trying to be smart about an investment that is supportable; without a reliance on the Chinese VIP market for example. I think our projections are quite reasonable with the existing volume of tourists coming into Incheon today, and looking at the growth prospects for tourism.”

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