FOCUS

Indochina’s increasing appeal

You don’t have to be a mathematical genius to work out that with only three licenses on offer in Japan, there will be a great number of disappointed investors, presumably with substantial capital at their disposal.

With Japan out of the equation, some operators will undoubtedly retreat to their home markets, though many others are likely to continue looking for opportunities to expand into Asia, the world’s most dynamic gaming region.

Indochina may provide some of the best potential. Vietnam has introduced new regulation to cover its casino and sports betting industries over the past two years and is seeing a steady stream of foreign investor interest.

Cambodia is expected to release long-delayed regulations for its gambling industry at some point this year, though the market there is already booming, with 150 active casino licenses at the end of last year. Smaller neighbour Laos is seeing some interest, with Macau Legend expressing a desire to expand its Savan Legend property, though expansion for the market as a whole is seen as limited.

Our focus section for this edition of Asia Gaming Briefings throws the spotlight on Indochina and some of the key recent developments. We profile the Corona Resort and Casino, which opened on the island of Phu Quoc in Vietnam in January. The debut marked a major milestone in Vietnam’s gaming evolution as it’s the first casino permitted to allow locals to gamble. We take an overview of the resort and its facilities, the challenges it faces and the market response so far.

Also in Vietnam, we delve into the expansion of Suncity Group Holdings, whose Hoiana resort will open later this year. Macau’s largest junket operator is transforming into a pan-Asian investment company, spreading its reach into Cambodia, Russia and South Korea as it seeks to build an integrated tourism platform.

In Cambodia, live casino continues to boom, however the lack of strict oversight is raising concerns. Alongside more established resorts, which are offering a valid omni-channel experience to guests, there is a proliferation of fly-by-night operations targeting Mainland China. We look at the ongoing appeal of live casino and whether uncontrolled expansion will fuel crime rates and ultimately a clampdown.

Lastly, no focus on Indochina would be complete without mentioning Sihanoukville. Expansion in what was a sleepy seaside town has been mind boggling, driven by an influx of Chinese capital under the “one belt, one road” initiative. We take a look at some of the developments and ask whether the boom is sustainable.

Suncity’s diversification gamble

Established in 2007 amid Macau’s casino boom, Suncity Group rose to become the former Portuguese colony’s largest junket business, operating opulent VIP rooms where well-heeled Chinese gamblers bet small fortunes on one hand of baccarat.

Lately though, the Hong Kong-listed outfit, is going to be the flagship for diversification by investing in multibillion-dollar IRs across Asia. Indeed, Suncity Group has fast-become a multi-faceted conglomerate.

“It is a step forward for Suncity Group to diversify its business,” says executive director Andrew Lo, “from junket to resort and casino operator to become an international integrated entertainment company.”

Suncity signaled a real statement of intent last August when it completed the purchase of a 34 percent stake (worth $76.8 million) in Vietnam’s $4 billion Hoiana project near the tourist hotspot of Hoi An, situated within the Quang Nam province. Developed in seven phases over 13 years and covering 985 hectares, the first phase currently under construction comprises 1,000 hotel rooms, a casino with 140 tables and over 300 slot machines, and an 18-hole golf course. Phase 1 of the impressive-looking IR is earmarked to open in Q4 this year.

Phase 2, being finalized at the moment, is set to include 100 villas, two hotel brands boasting 2,000 rooms, a commercial village with retail stores and a theme park. A total of 4km of beach line will be part of the project, as well as more than a dozen restaurants.

“With Hoiana being the first integrated resort we have developed, we have high expectations,” says Lo. “It is totally different from hotels in Macau, in terms of the target market and operation strategy. The market positioning of Hoiana is a resort destination, [so] the revenue will not only come from the tables, but from other facilities.”

High rollers

While Lo expects VIPs to be the main target visitors initially, overhauls to infrastructure in the region will be conducive to attracting mass-market visitors. This includes the redevelopment of Da Nang airport (which was completed in 2017), which is 40km up the coast from Hoiana and is expected to handle 13 million passengers in 2020, as well as upgrades to roads and an increase in the number of hotel rooms.

“We believe the mass market will pick up in two to three years,” he says. “At the beginning, we believe the market will be 75 percent VIPs and 25 percent mass market, and from last year’s data we noted a boom in the number of Chinese and South Korean arrivals in Da Nang City. Therefore, we will mainly target VIPs from these regions.”

With a generally warm climate most of the year and more than 3,000km of coastline, Vietnam’s appeal as a tourism destination continues to grow. In 2018, the country welcomed 15.5 million international visitors (almost five million from China), up from 12.8 million the previous year, while De Nang’s international arrivals totalled 2.8 million – a 23.3 percent jump over 2017, according to the municipal Department of Tourism.

The city’s airport underwent expansion in 2017 and since then national and international airlines have launched direct flights to and from Da Nang. Tourist numbers from China, South Korea, Japan and Thailand are growing exponentially.

Suncity Group was quick to pounce on Vietnam’s rapid growth and potential when it established Suncity VIP Club at the Crowne Plaza Danang two years ago.

This foray into Vietnam was to “test the water and warm up the market,” as Lo puts it. Furthermore, Suncity has entered into an agreement to provide technical and pre-opening services to a resort project in Van Don, located in Quang Ninh province. “With a total investment of $2 billion, we believe the project will become Vietnam’s latest tourist landmark,” Lo states confidently.

Regional presence

Vietnam is just one piece of the jigsaw, though. Across the border in neighboring Cambodia – one of the world’s fast-growing gaming hubs – Suncity has forged a strategic partnership to provide consultancy services for a $360 million IR being built by Golden Sun Sky Entertainment in Sihanoukville, a once sleepy coastal city now awash with Chinese-run casinos and Chinese tourists. Suncity Group has also long been cooperating with NagaWorld, the only casino resort in the capital, Phnom Penh, and last year opened its first VIP club: NagaWorld Suncity VIP Club.

With the influx of visitors from China (1.27 million in the first eight months of 2018), as well as an explosion in casino resorts and foreign investment, Lo believes there is “great potential in Cambodia’s VIP gaming market,” in the coming years. More generally, from a cost perspective, it also makes commercial sense to expand into Cambodia and other parts of Southeast Asia, as he explains: “The tax rates in Cambodia, Manila and Vietnam are much lower in comparison to Macau, [while] the cost of operations, labor and hotel room allotments are comparatively cheaper. Despite the commercial risks being the same as Macau, the profit margins in these new markets are bigger.”

Elsewhere, Suncity recently inked a memorandum of understanding with South Korea’s Paradise Co. on possible cooperation on Paradise Casino Busan, a market Lo says will “continue to be a key tourist destination” for Chinese travellers. Suncity has also acquired an almost 28 percent interest in Summit Ascent, which operates the Tigre de Cristal casino in Vladivostok, Russia.

Looking ahead, Suncity Group has deployed a multi-pronged approach to expanding the group’s interests and revenue streams, as well as expanding its footprint across Asia. The group is now far more than just a junket business supplying Macau’s casinos with VIP players from Mainland China. The ambitious Hoiana project – Suncity’s first IR – will be a major milestone in the journey and could truly take the group to the next level.

Can Corona lure in the locals?

On first glance, the island of Phu Quoc, with a population of just 100,000, would appear to be an unusual destination for arguably Vietnam’s most significant casino development to date.

Corona Resort and Casino, which opened in January, is the first venue in the country to admit Vietnamese nationals onto the floor under a three-year pilot scheme. Netherlandsbased Upffinity Gaming Management operates the venue under an exclusive management deal signed in May 2017, while Peter Keijzer, the former general manager of Holland Casino in Amsterdam, is serving in the same role at the Phu Quoc venue.

The casino’s location, though, is seen by some as a big challenge.

“We heard it was slow at the beginning, but it’s picking up,” Fortuna Investments director Tim Shepherd said at the ASEAN Gaming Summit in March. “The junkets are starting to pay attention. It’s slow, but it’s getting there.”

Augustine Vinh, president of Stellar Management Corp. and adviser to the Vietnamese government on gaming-related issues, added: “Phu Quoc is a small island. They are hoping to get people from the provinces in the south and maybe some from Cambodia. They want the Vietnamese from Ho Chi Minh City to get on a plane as it’s only a 45-minute flight and it’s quite cheap.”

Connections

Situated in the Gulf of Thailand, Phu Quoc is a stone’s throw from Cambodia. Daily direct flights of less than two hours bring in tourists from Bangkok to the island’s international airport, which opened in 2012 and welcomes four million travellers per year.

Positioned for domestic and international visitors, Upffinity chief operating officer Goran Milosheski insists Phu Quoc is the right location for many reasons, one of which has been significant recent investments in infrastructure on the island.

In 2014, Phu Quoc was designated as a special economic zone by the Vietnamese government, allowing all visitors to stay on the island for up to 30 days visa-free, boosting the picturesque island’s tourism and international trade prospects.

“There are no other casinos on the island of Phu Quoc,” Milosheski says. “Considering such substantial investments, we believe that this project will draw more travellers to the island from Vietnam and rest of the region.”

Local interest

Currently about 40 percent of the casino’s visitors are Vietnamese, with around 10 percent being from Phu Quoc.

“We expect the Vietnamese segment to grow significantly in the coming year,” Milosheski adds. “The local economy is experiencing a significant inflow of capital, especially in local and international tourism.

“There are multiple new hospitality projects being developed in Phu Quoc and the local population is mainly involved in hospitality, fishing and small manufacturing.”

The casino itself, designed by Steelman Partners, forms part of an extensive integrated resort featuring five-star Radisson Blu and VinOasis hotels, with a combined total of nearly 2,000 rooms, a convention centre, theatre, shops, an 18-hole golf course, a safari attraction and an amusement park.

“There are lots of amenities in terms of entertainment and leisure, as well as gambling,” Milosheski adds. “It takes inspiration from similar projects in Asia and the western hemisphere.”

Casino floor

The 18,000 square metres of casino space offers 100 tables – including baccarat, roulette, black jack, sic bo and poker variants. There are 30 automated roulette stations and about 850 slot machines.

Baccarat and roulette are the “games of choice” at the casino, according to Milosheski, with minimum bets of VND500,000 ($21.50) for the former and VND50,000 for the latter.

Black jack bets start at VND300,000, while the casino’s 1,000 electronic gaming machines offer bets from VND10,000. A total of 125 stadium gaming terminals, offering live dealer roulette, are also available.

The casino has three restaurants, as well as bars and lounges. Up to 1,500 guests can be welcomed at any one time, with predictable spikes in visitor numbers on evenings and at weekends.

To cater for the visitors, the resort employs about 1,300 staff members, of which about 500 are casino staff.

“We expect these numbers to increase to 1,500 staff members in total, with around 600 being casino staff,” Milosheski says.

“Our casino staff are recruited from around the country, with a small number of experienced expatriate managers from the major markets of Macau, Singapore and Manila. More than half of our dealers were trained from scratch by our expatriate professionals.”

VIPs

Without disclosing specifics, the casino’s source of revenue is largely via VIPs, Milosheski says.

“Corona offers several VIP gaming areas, including three areas on the main floor, two VIP gaming areas on our mezzanine floor, and finally, our VVIP gaming area and private gaming spaces in our Sky Casino with its spectacular views,” he adds.

Estimates in 2017 suggested that Vietnamese spend $800 million on gambling in neighbouring countries every year, but attracting and retaining high rollers will be a key challenge for the casino, according to Vinh.

“The government wants to stop the outflow of money from gaming, but the high-roller players don’t want to play in Vietnam,” Vinh adds. “They don’t want the scrutiny so they go to Macau and Singapore if they are high rollers, while the low end goes to Cambodia.”

Whilst the opportunity for locals to gamble at Corona has monopolised media interest in the development, it is clear that the long-term success of the casino is more likely to hinge on whether VIPs can be persuaded to travel to Phu Quoc and try out a new and unique gambling experience.

Robust rules lacking in live casino boom

Cambodia is Indochina’s undisputed king of live dealer gaming, with land-based casinos rushing to install dedicated set-ups to stream action from gaming floors to online players.

Cambodia has witnessed an explosion in casino gaming of late – and it shows little sign of subsiding. There were 150 active casino licenses at the end of 2018, according to the country’s Ministry of Economy and Finance, which was a 53 percent increase on the previous year’s total of 98 active licenses. Despite the fact it’s illegal for Cambodians to gamble, the country has a booming casino market, attracting gamblers from across Asia.

However, securing a license in Cambodia means a casino is, by default, able to offer online gaming too, including the live streaming of games for online players to bet on remotely. This tantalizing prize means the prospect of installing and launching a lucrative live casino offering is often the primary reason for seeking a license in the first place. It has also turned the Southeast Asian country into a hotbed for live dealer gaming.

One operator betting big on live casino in Cambodia is Donaco International at its Star Vegas casino in Poipet, a border town neighboring Thailand that is the closest legal gaming destination to the greater Bangkok area (a four-hour drive away). As well as over 100 gaming tables and 1,500 slot machines catering mainly to Thai nationals, the resort has also installed a live casino set-up consisting of 12 tables offering baccarat, sicbo, roulette and dragon tiger.

The games are streamed live from a dedicated space overlooking a section of the property’s casino floor. Star Vegas is also in the testing phase of a relaunch with a new software platform. “Players in Asia especially have more trust when physical cards and live dealers are involved,” says Ben Reichel, executive director of Donaco International. “Also, of course, having a real physical casino with a solid reputation and valid operating license is very important to build trust in online gaming.”

The ASX-listed operator bought Star Vegas – Poipet’s largest casino – for $360 million in 2015. Yet live gaming wasn’t a driving force at the time.

“We purchased the Star Vegas business primarily for the strength of its physical casino offering, to players from Thailand and Bangkok in particular,” says Reichel. “Online is a growth area, as the business has not previously sought to operate in this market. We are proceeding cautiously and ensuring we retain the strength of the brand that Star Vegas has built in the Thai market, and increasingly in other Asian markets.”

Besides Poipet, the port city of Sihanoukville is also a live casino hub. Once a quiet fishing village and a haven for backpackers, Sihanoukville has become a magnet for Chinese investment, including the construction of casinos. There are more than 30 casinos and some 70 more under construction in this special economic zone, turning this part of Cambodia into a mini Macau.

Canadian Jonny Ferrari worked out of Sihanoukville as a consultant to Cambodian casinos before recently relocating to the US. Speaking to AGB from Texas, he pulls no punches when discussing the proliferation of live casino. “Cambodia is the number one exporter of live casino because it’s so easy to procure a license. It’s easier to get a license for live casino than a license for a restaurant. Plus, you can bribe [officials]. Everything and everybody are for sale – and I mean everybody.” He adds: “Sihanoukville is the Wild West and a cesspool for corruption.”

So, with casino licenses fairly easy to secure, as well as scant regulation and oversight, it’s clear why casinos are quick to set aside areas for live dealer tables, as well as HD cameras, microphones and the back-end infrastructure to stream the action online. The primary target for live casino players are gamblers situated in Mainland China, where almost all forms of gambling are outlawed.

To stay under the radar there, agents on the ground recruit gamblers to play on websites with URLs containing a jumble of letters and numbers, while cryptocurrencies are a common payment method. Often though, according to Ferrari, live casino can be as rudimentary as an agent sitting at a table in a Cambodian property and taking photos on his phone of the cards and bets. “They [Chinese gamblers] are placing bets through their stealth agents who are physically there,” Ferrari explains.

With no cap on the number of land-based licenses due to be awarded in Cambodia, the live casino gold rush is set to continue unabated – and unchecked. Yet Reichel says the high-profile brick-and-mortar brands hold the upper hand. “Some operators have been setting up physical casinos solely in order to offer online gaming. But unless they have a solid track record of operation as a physical casino, many online players will not trust them anyway.”

What Cambodia desperately needs is a robust framework to properly regulate online gaming. This would legitimize live casino and help create a proper omni-channel gaming experience similar to Europe where operators strive to provide a seamless experience between land-based and online. This does seem some way off, though. For Ferrari, live casino is likely going one of two ways: “There is either going to be a major explosion of legitimacy, or there is going to be an implosion by way of criminality.”

Sizing up Sihanoukville

Construction in the once sleepy seaside town of Sihanoukville is everywhere, with cranes, cement trucks, container lorries, and excavation generating clouds of endless dust.

Of all the locations in Cambodia seeing an increase in foreign casino investment, the coastal town is far and away the most buoyant. Out of the 52 new casino licenses granted in 2018, 78 percent of those went to operators seeking to set up shop in Sihanoukville.

The rapid transformation, driven by billions of dollars of Chinese investment, has inevitably lead to concerns that the development is not sustainable. It’s driving up prices for locals and pushing away visitors from its traditional tourism markets.

However, experts say there are a series of factors underlying the boom that should underpin the market, as long as relations with China remain stable. The changes may have scared away penny pinching backpackers, but they are being replaced by high-spending Chinese.

“In just a few years Sihanoukville, without doubt will become a transformed city,” says Dominick Stenson, casino director at Queenco, one of the more established properties in the region. “All the elements will be in place for it to become a major tourist and gaming destination.”

“Even now when it’s in embryo stage there are thousands of new Chinese tourists visiting the casinos here. Not only Chinese, there are increasing numbers of Malaysians also coming in large numbers,” he adds.

Stenson said there are big brand hotels, which are slowly putting their toes in the water with some major builds planned in the next two years. Many casinos are moving onto the second phase of development and the smaller properties that shot up to meet nascent demand are now seeing business decline as visitors migrate to the higherquality resorts.

Queenco, which has 20 main floor tables and 10 in a junket area, is adding another 200 rooms bringing the total to 400. It is also constructing a new VIP gaming area and will begin to convert another area in the casino to an online studio.

The next step will be a mega project on Queenco’s beach-side land at Otres Beach, with an investment of more than $900 million. The five-star integrated resort will be built on nine hectares of prime beachfront, with two hotels totalling 3000 rooms and suites, a casino, shopping centre, convention centre and condominiums. The project is planned to start mid 2019.

According to Global Market Advisors partner Andrew Klebanow, who carried out on the ground checks last year, there are four main factors driving growth in Sihanoukville, mostly linked to investment under China’s “Belt and Road,” initiative.

The town is home to a deepwater port, which is a major hub for the export of finished goods. That port is being expanded to accommodate larger vessels, which in turn is expected to drive further growth and boost the number of expatriate workers living in the area.

Just 12km from the port lies the Sihanoukville Special Economic Zone, one of the landmark projects along the “belt and road,” which currently houses about 90 factories making products ranging from garments to hardware and machinery.

The SSEZ, which is a venture between Chinese and Cambodian companies, has ambitious goals to expand that number to 300, employing between 80,000 to 100,000 people.

“Those factories will require foreign managers, logistics personnel, etc., driving demand for housing for these expatriates as well as demand for lodging from business travelers,” Klebanow said.

A new $2.1 billion super highway is being built between Sihanoukville and the capital Phnom Penh, which will cut the five-hour journey time in half, opening the area to weekend traffic from the city’s expatriate workforce, while the airport is adding new destinations providing direct links to regional destinations.

Currently about 10 airlines fly from Sihanoukville, with direct flights to Macau, six Chinese cities, Kuala Lumpur and Ho Chi Minh City in Vietnam.

The airport handled over 650,000 passengers in 2018 and has experienced triple-digit growth every year since 2016.

From July, Thai AirAsia is expected to start flying between the town and Bangkok, opening the market to Thailand, whose visitors are the main clientele of Cambodia’s border casino town Poipet.

“Considering that Poipet is a miserable 3 ½ hour drive from Bangkok, hopping on a 45 minute flight to Sihanoukville presents a very attractive alternative for residents of Bangkok seeking a gaming/beach vacation experience,” says Klebanow. “I remain convinced that Bangkok is an underserved market, given the product offerings in Poipet and travel time via ground transport to that market.”

As new resorts mushroom, the size and scale are new to anything the Cambodian market has seen before, with high rise towers, offering a mix of rooms, condominiums and casinos.

To name but a few, last October, the The Xihu Resort opened with 507 keys, three floors of gaming, a helipad and a dock.

While Hong Kong-listed Suncity Holdings last September signed a services accord to operate the $360 million Golden Sun Sky Resort. The project will cover a gross floor area of approximately 550,000 square meters of which approximately 120,000 square meters will be allocated to the casino. It will comprise hotel accommodation, restaurants, commercial units, a residential complex and sports and meeting facilities. So is this development sustainable?

“All in all, the prospects for Sihanoukville from a tourist and gaming perspective are very bright for those who are willing to invest in a better product,” Stenson says.

Klebanow agrees and adds that longawaited legislation covering the casino industry is expected this year, which will further open the market to a different sector of investors.

“There are not a lot of new development opportunities in Asia once one gets past Japan. The barriers to entry are lower as is the amount of capital needed to develop a resort destination,” he says. “I believe the LMCG (casino regulation) will be a game changer. Regional foreign casino operators will be able to enter the market with the assurance that they will not be jeopardizing their privileged gaming licenses in other jurisdictions.”