PHILIPPINES

Risk premium clouds prospects

“I hate gambling. I do not want it. There will be no casinos outside of what are existing. I am not granting anything.”

Since the beginning of his presidency just over two years ago, Philippine President Rodrigo Duterte has not minced words when talking about his disdain for gambling. It was only a couple of months ago, he lashed out at the casino sector anew with those stark words.

“Online gambling must stop,” were Duterte’s words during his very first cabinet meeting on June 30, 2016 as he vowed to destroy illegal online gambling and electronic gaming parlors that had previously been loosely regulated. Putting action to words, on February 2, 2017 he passed an executive order directing law enforcement agencies to step up the fight against illegal gambling.

In January, Duterte ordered state-owned casino regulator, the Philippine Amusement and Gaming Corp. (PAGCOR) to stop accepting new casino applications to prevent overcrowding in the sector.

But that has not stopped confusion between the President’s office and PAGCOR and the two bodies have made conflicting statements about the status of casino projects in the country, creating an uncertain investment environment in the gaming sector.

In late March, Duterte announced that he would not allow any casinos to open on Boracay, and that the island would be closed to tourism for six months for an environmental cleanup. The pronouncement came only a few days after PAGCOR issued a provisional license to Macau-based Galaxy Entertainment and its local partner Leisure and Resorts World.

Later, Galaxy Vice Chairman Francis Lui Yiu Tung said his company’s dispute with the government over its plans to develop a gambling resort on Boracay was just a “misunderstanding.” Duterte had in fact held a meeting with Lui Chewoo, chairman of Galaxy on December 6, 2017 in the Palace, where according to PAGCOR Chair, Andrea Domingo, the proposed casino-resort was discussed and agreed upon.

But when asked, Duterte appeared to not know about Galaxy Entertainment’s plan, saying “What? Mga casino? Who owns the casino? There are no plans there for casinos. There are too many.”

Although Galaxy officials have expressed optimism about their chances of proceeding with casino projects in both the Philippines and Japan, they have said that Macau will remain their priority for now.

Then in August, Duterte abruptly shelved Landing International’s $1.5 billion integrated casino project in Manila and fired Nayong Pilipino Foundation Inc., which leased around 10 hectares to Landing just as it was breaking ground on the new project at an elaborate launch ceremony. Duterte ordered a review of Landing’s lease contract calling it “flawed,” and the 75-year lease period a “ridiculous long period of time.”

After much confusion, Justice Secretary Menardo Guevarra said the deal between stateowned Nayong Pilipino and Landing would be investigated, but stressed that it did not mean the project was dead.

“The removal of all the members of the Nayong Pilipino board, by itself alone, does not affect the implementation of the project,” he said following the event.

A report by independent financial adviser FTI Consulting Philippines, Inc. states that “despite the (gaming) industry’s positive outlook, it is not without risks brought about by the current regulatory environment.”

Policy uncertainty has always hounded the gaming segment, from tax implications, to money laundering, and now to expansion plans of other casinos.

The report goes on to state that the current administration’s policies on casinos and gaming were “quite unpredictable,”

This confusion and uncertainty comes at a time when the Philippine gaming sector is poised to become one of the fastest growing in Asia, partly benefiting from bans on gambling in many Southeast Asia nations such as China.

According to government data, at the end of last year, there were nine private casino firms in the Philippines operating 1,444 gaming tables and 9,427 electronic gaming machines. The country boasts one of Asia’s fastest-growing gambling markets, with gross gaming revenues rising 11.6 percent to 176.5 billion pesos last year.

“Policy uncertainty has always hounded the gaming segment, from tax implications, to money laundering, and now to expansion plans of other casinos. The more important question is if the growth of the market will be strong enough for more players to enter the market. With the risk of VIP growth slowing down because of uncertainty in China’s economy, this brings into question if the market can handle more supply in the near future,” said Richard Laneda, a research analyst at Col Financial.

“Sentiment was ok up until this year when the China economy was put at risk because of the trade dispute with US. We saw VIP volume growth in Macau slow down in 2H18 and this affects the outlook not only in Macau but also in the Philippines,” he added.

While VIP growth might be at risk, there is still movement in the online gaming sector.

The recently set up Philippine Online Gambling Operations (POGOs) licenses have generated some economic development, particularly in the property and F&B sectors.

Gambling is illegal in China and to skirt this obstacle gambling companies have to operate outside the mainland- mainly the Philippines.

According to the PAGCOR, 57 POGOs have been authorized to operate in the Philippines. While it’s unclear how many Chinese are employed under these POGO licenses, anecdotal evidence shows that the majority are Chinese-owned, helped by Duterte’s improved ties with Beijing.

PAGCOR predicts the licenses will generate P6 billion in fees in 2018. The gambling regulator gets 2 percent of the gross gaming revenues of POGOs,which are then used for PAGCOR’s programs.

“I think they are here to stay as they are an important source of funds for the government. But additional demand has slowed this year and could slow further next year as PAGCOR is no longer giving out new licenses,” said Laneda.

Despite the uncertain political environment, some plans are moving ahead. Japan’s Universal Entertainment Corp announced it will take its local unit public through a backdoor listing in Manila.

Asiabest Group International, an investment holding company listed on the Philippine Stock Exchange, said its shareholders signed a deal for Universal’s subsidiary, Tiger Resort Asia Ltd, which owns operates the $2.4 billion Okada Manila integrated casino-resort, to acquire two-thirds of the company for $12 million.

PAGCOR has said it will look into the transaction.

“Any application by our licensee to undergo public listing will require approval of PAGCOR but we have not received any application yet from Tiger,” said Domingo.

While the President has made clear his distaste for gambling, it’s also clear that the gambling industry is very lucrative for the country.

Bloomberry Resorts

Bloomberry Resorts’ Solaire was the first IR to open in Entertainment City and is now planning a second IR to the north of Manila to cater for the local mass market in Quezon City. Solaire is a 16-hectare integrated resort. The Bay Tower of Solaire consists of a casino with an aggregate gaming floor area of approximately 18,500 square meters (including 6,000 square meters of exclusive VIP gaming areas), with about 1,400 slot machines, 295 gaming tables and 88 electronic table games. Bay Tower has 488 hotel rooms and 15 specialty restaurants. Contiguous to the existing Solaire Resort and Casino, the Sky Tower consists of a 312 all-suite hotel, an additional ten VIP gaming salons with 66 gaming tables and 223 slot machines. It also includes a certified 1,760-seat lyric theatre. Sky Tower has been named as one of the 58 most luxurious hotels in the world by Forbes Travel Guide 2018. This is the second time running that the hotel tower has won the Forbes Travel Guide 5 Star Award.

City of Dreams

The $1.3 billion City of Dreams Manila is owned by Belle Corp and Melco Crown Entertainment’s local unit. Melco has dropped plans to delist Melco Resorts & Entertainment (Philippines) after objections raised by some minority shareholders. It will proceed with a planned tender offer. City of Dreams Manila has six hotel towers with approximately 950 rooms in aggregate, including VIP and fivestar luxury rooms and high-end boutique hotel rooms, a wide selection of restaurants and food & beverage outlets, a 4,612.44 square meters family entertainment center in collaboration with Dreamworks Animation, a live performance stage, two international nightclubs and a multi-level car park. In October, the company opened Southeast Asia’s first Bandai Namco VR gaming facility, named “The Garage.” With a space of 2,714 square meters, the attraction is the first of its kind in the Philippines – merging VR gaming recreation with dining. The zone will feature 3 immersive VR games from Bandai Namco, and 10 crowd-favorite food and beverage restaurants via food trucks.

Tiger Resort, Leisure and Entertainment

Okada Manila, owned by Japan’s Universal Entertainment, is the largest resort in Entertainment City and the last to enter the market, with a soft opening in 2016. The property spans 44 hectares and at the completion of Phase One, Okada will have 994 hotel rooms and operate 500 tables and about 3,000 slots. Its centrepiece is the world’s largest coloured fountain, as well as a giant inner city beach complex, known as “Cove Manila.” The company is planning a backdoor listing on the Philippine Stock Exchange through a takeover of Asiabest Group. Former Universal Chairman Kazuo Okada is questioning the transaction and has filed intra-corporate suit against Tiger fighting his removal from the board.

Resorts World Manila

Travellers International Hotel Group, a joint venture between Genting Hong Kong and Alliance Global, is the owner and operator of Resorts World Manila. The hotel room count for the group’s three hotels (Maxims Hotel, Remington Hotel, and Marriott Hotel Manila) remains at 1,226. The property is currently in the third phase of its expansion. The new Grand Wing will have three international luxury hotels – Hilton Manila, Sheraton Manila Hotel, and Hotel Okura Manila, adding approximately 940 rooms. It will also include new gaming and retail spaces, as well as six basement parking decks. Further down the road, it will open the fourth and final IR planned for Entertainment City, which is scheduled for 2020. The group is planning to spend P240 billion (US$4.4 billion) over three years to ensure its “organic growth”.

AGI said its capex is intended to launch more development projects around the country, including the expansion of its hotel and integrated resorts operations, among others.

“We are mindful of the current domestic and global economic developments, but we remain cognizant of the vast opportunities in the market; hence, our continued aggressive capital spending,” says Kevin L. Tan, chief executive officer, AGI.

Philippines mulls visitor caps

The Philippines is considering imposing “capacity limits” on tourists in major tourist hotspots similar to those imposed in Boracay Island.

Tourism Secretary Bernadette Romulo- Puyat said President Duterte has already instructed the Department of Tourism, the Department of Environment and Natural Resources, and the Department of the Interior and Local Government to check the carrying capacity of all major tourist destinations.

Boracay currently has a tourist limit of 19,215 per day – a limit used to assist with the island’s rehabilitation. Boracay had a soft opening on October 26, with new guidelines announced for tourists, business owners, and residents.

Romulo-Puyat said that big gatherings, such as the annual La Boracay in May, as well as gambling and casinos, will not be allowed on the island.

Casino workers banned from gaming

The Philippines gaming regulator ruled that all gaming workers holding a “Gaming Employment License” (GEL) will be prohibited from playing in any gaming establishments in the Philippines.

The Philippine Amusement and Gaming Corp said that it has added the names of all GEL Holders into the National Database of Restricted Persons, effective September 10, 2018.

Those included in the entry ban are gaming table and machine operators, promoters, workers in cashier cages, security and cleaning staff, restaurant staff, and staff members that work in surveillance rooms.