FOCUS

Monitoring the Mekong

Before the Covid-19 crisis, tourism in the Greater Mekong Sub-Region was at a record high, on track to welcome 80 million visitors in 2019, generating some $90 billion in revenue.

Regional governments have focused on interregional cooperation, putting agreements in place to help improve tourism infrastructure and promote each other’s respective countries, creating a vibrant internal Mekong market.

The nations have also been at the forefront of investment into integrated resorts, with Vietnam seen as one of the most attractive jurisdictions in Asia. Myanmar, keen to boost its foreign exchange reserves and pull in more visitors, last year passed legislation setting out a framework for legal casinos. While Cambodia, once seen as the wild-west of casino investment in Asia, is slowly evolving.

In our focus section, we look at opportunities around the region and efforts that are being made to make up for the current lack of international travel. We hone in on recent proposals in Vietnam that will allow investment in infrastructure in designated economic zones to be counted when it comes to minimum capital requirements for integrated resorts.

This key change will allow a major project in the far north of the country to proceed. The Sun Group is aiming to create a tourism and entertainment zone in Van Don, which may become home to as many as eight casinos.

Once a remote and difficult to access area, it is now served by a new international airport and highways, which have cut the travel time to Hanoi to just 3.5 hours.

We also take stock of the situation in Cambodia.

At the beginning of last year, the government banned online gambling, pulling the rug out from many of the properties that had sprung up to make money out of live dealer operations. Many of those have now shut up shop, while the current pandemic has also dealt a further blow to the market.

Adam Steinberg, a long-time casino consultant, with first-hand experience of Cambodia, discusses the nation’s potential and the right business model for the market.

In our third piece, we examine how regional governments have been forced to focus on boosting the domestic tourism market to try to fill the vacuum left by international visitors. On the whole, demand for internal travel has been strong, though in most of these countries it hasn’t helped operators as locals aren’t allowed to gamble.

Those with large expatriate populations, especially of Chinese business executives, have done better. NagaCorp in Phnom Penh for example has seen its volumes in the mass market return to about 97 percent of its prior levels, though the more volatile VIP segment has been lagging at just over 70 percent.

Casinos in most other areas are waiting for borders to reopen, so they can service their prior cross-border clientele.

However, if travel in the Greater Mekong Sub Region returns to pre-pandemic trends, the future should be bright for tourism and integrated resorts in this vibrant area of Asia.

Van Don eyes tourism/ entertainment hub

Vietnam is seen as one of the most promising emerging markets in Asia and recent changes in regulation will unlock plans for an ambitious project to create a Macau-style entertainment hub in the north of the country.

The government recently announced it plans to allow funds invested in infrastructure in designated economic zones to be counted as part of the minimum capital requirements for integrated resorts. The country’s gaming decree stipulates that developers need to spend $2 billion on the resort and at least $1 billion needs to be disbursed before the casino license will be issued. The new proposal still needs to be ratified by the parliament.

That was creating roadblocks for investors in the Van Don Special Economic Zone in particular, as the area suffered from poor infrastructure and required substantial investment to improve access.

Sun Group, a Vietnamese property developer, holds the license to run casinos in the zone and is now expected to proceed with its project, which is close to the UNESCO World Heritage Site of Ha Long Bay.

The group has already invested VND7.5 trillion ($322 million) in Van Don International Airport, which opened in December 2018 and VND12 trillion into the 60km Ha Long-Van Don Expressway which is expected to be complete in 2021.

However, the integrated resort portion of the zone was delayed pending government decisions on the minimums. According to the company’s website, it was initially forecast to begin construction in 2017, with completion in 2025.

To be built over 2000 hectares, the resort will include hotels, villas, apartments, a theme park, commercial center, exhibition space, sports complex with horse racing and an 18-hole golf course. Sun Group is the only casino license holder, but the resort may house up to eight separate casinos.

Situated 15 minutes from the airport and 3.5 hours from Hanoi on the new highway, it will also be linked by road to Mainland China.

“I would put Vietnam as the hot spot in Asia right now,” said Ben Lee, managing partner in iGamiX Management & Consulting, which is involved in the Van Don and other projects in the country. “One of the unique factors is the land border with China, which no other regulated jurisdiction other than Macau has.”

“Despite the political differences, it has been an attractive destination for the Chinese, with a unique culture and at reasonable price points,” he adds.

Dr Oliver Massmann, a partner with law firm Duane Morris, who has more than 20 years of experience working in Vietnam, also cited the country’s dynamic economy with a rising metropolitan middle class, as well as a huge potential for tourism, with long coastlines and natural landscapes, as key draws.

Last year, Vietnam attracted a record 18 million tourists, generating revenue of $31.4 billion. China was the main source market accounting for 5.8 million of the total, followed by South Korea with 4.2 million.

It is also one of the best-performing economies in Asia, with gross domestic product expanding by about 7 percent in 2019. Vietnam hasn’t escaped the economic ravages of the Covid-19 pandemic, but is expected to still record growth for the year as a whole.

Economic reforms launched since 1986 have lifted millions out of poverty. Currently about 13 percent of the 97 million population are considered middle class and that’s forecast to rise to 26 percent by 2026, according to World Bank figures.

Locals are only allowed to gamble in two casinos in the country under a three-year pilot program. One of those is Van Don and the other is the Corona Resort & Casino on Phu Quoc.

I would put Vietnam as the hot spot in Asia right now.

Developed by Vietnam’s Vingroup and managed by Netherlands-based Upffinity, Corona last year got about 45 percent, or 47,400, of its casino guests locally last year. The resort opened in early 2019.

Hong Kong-listed Suncity Group Holdings holds a contract to provide management and technical support to the Van Don project. It has also opened its own $4 billion foreigner-only property in the centre of the country.

The central region around Danang is viewed as having among the most potential due to its strong flight connectivity, however, properties there are not allowed to accept locals.

“The ban on locals gambling is still a major hurdle,” Dr Massmann says. “The government seems reluctant to open the floodgate. If foreign investors cannot access local customers they will have to rely almost exclusively on foreign tourists and that may be challenging in the short term due to Covid.”

He adds there are further drawbacks in that casinos need to be integrated into a wider hospitality project, which means higher entry costs, involving large areas of land and investment in connecting infrastructure.

Vietnam has eight operational properties that have doubled their revenue in the past three years, from VND1.19 trillion in 2017 to VND2.5 trillion in 2019, according to Ministry of Finance figures cited by local media. The contribution to the State budget rose from VND645 billion to VND1.34 trillion.

Dr Massmann says aside from Hoiana, which is scheduled to open fully next year, there are a further two IRs that have received approval -- Laguna Lang Co in Hue and Casino KN Paradise Cam Ranh in Nha Trang.

Rightsizing Cambodia’s casino industry post-Covid 19

Adam Steinberg*

Through government action and a cultural norm of wearing face masks when ill, Cambodia has seen few get sick during the COVID-19 pandemic. According to the World Health Organization, Cambodia has 275 COVID cases and zero COVID-related deaths as of the last week of September.

However, the pandemic has had an impact on Cambodia’s economy. Cambodia has been one of the fastest growing economies in the world, with annual GDP growth between 6 percent and 7.5 percent since 2009. But the Asian Development Bank estimates GDP will contract 5.5 percent in 2020; reversing gains made in combating poverty.

In 2008, 47.8 percent of the population lived below the poverty line, declining to 12.9 percent by 2018. The Asian Development Bank estimates the contraction will push around 20 percent of the population below the line in 2020.

The decision to close the country’s casinos limited COVID’s spread but impacted the economy because tourism is one of two important industries driving Cambodia’s economy. A reinvigorated Cambodian casino industry could drive a recovery in Cambodia’s fight against poverty.

However, casino industry investment has to mature to bring real gains to the Kingdom. The casino industry in Cambodia has been self-regulated consisting of NagaWorld and a couple of other regional resorts, including Donaco’s Star Vegas Resort and Club, while the remainder of the country’s over 190 casinos are no-frills properties for the hard-core gamer. Many of those properties were created to profit from online, live table gaming, but the Kingdom’s decision to ban such operations in January 2020 resulted in many properties closing.

Because the industry doesn’t report gross gaming revenue (GGR), the actual GGR is unknown, but based on public reports, property visits and conversations with operators and suppliers it is estimated that NagaWorld generates more than half of Cambodia’s GGR.

There are a number of elements that make Cambodia an attractive market for casino operators, including relatively low costs to operate and a young motivated workforce, but, we believe there are four factors that should make operators confident to invest in Cambodia’s casino industry:

• The NagaWorld success story: the property in Phnom Penh is an entertainment destination with international 5-star quality hotel rooms, numerous F&B options, live entertainment and retail. The company achieved peak market capitalization of over $8 billion in November 2019, before COVID-driven market declines. Since its IPO, the company has paid more than $1.2 billion in dividends.

• The Law on Management of Integrated Resorts and Commercial Gambling: establishment of a regulatory oversight function will provide comfort to international operators, lenders and investors to invest in Cambodia. Additionally, the tax rate (7 percent on mass market GGR; 4 percent on junket GGR) is low relative to other Asian markets; thus, providing an investment incentive.

• China’s Ministry of Culture and Tourism blacklist of overseas tourist destinations: the Ministry statement highlighted those countries on the blacklist are “endangering the personal and property safety of Chinese citizens.” From our experience, we find Cambodia to be a relatively safe country to visit, while the larger resorts employ safety measures that we did not experience visiting some of the no-frills gaming centers.

• Increasing foreign direct investment (“FDI”): Cambodia was one of four ASEAN nations to achieve record FDI in 2019, leading to increases in the expat community and business-related visits. The casino is a secondary reason to visit Cambodia, while close government relations will also protect Cambodia from China’s blacklist.

Based on the above noted qualities, the gaming industry in Cambodia should develop fewer, but larger resorts, with suitable nongaming amenities for the expected growth in tourism. The Cambodian Ministry of Tourism estimates international visitation will reach 12 million visitors by 2025, up from 6 million visitors in 2018.

Built correctly, the casino industry is positive for a market, bringing skilled, high paying jobs and direct and indirect benefits for local small businesses. From Naga’s 2019 annual report, we note 94 percent of the company’s over 8,600 employees are Cambodian and wages are higher than the national average with a shorter work week and other benefits. The company contributed approximately 1.2 percent to Cambodia’s national GDP.

The difference between Naga and, to a lesser extent, Star Vegas, from the other casino properties in the country is the investment in non-gaming amenities such as restaurants, nightclubs, retail and luxury hotel rooms. The benefits of these investments are longer stays by property patrons and enhanced safety for international visitors from China and other southeast Asian nations, such as Malaysia, Thailand and Vietnam. In the absence of a potential COVID vaccine, social distancing guidelines will reduce the potential profitability of a casino property, but these other amenities are an added inducement to visit and will offset lost revenue from fewer gaming positions.

The size and scale of such investment will be dependent upon total casino licenses issued and the ease with which international travelers can get to the destination. Phnom Penh is the capital and home to the largest airport; thus, investment in this market will be larger than investment in other cities. Nonetheless, international integrated resort developers can generate sufficient ROI to justify investing in Cambodia.

* Adam Steinberg is Founder of AM Steinberg Advisors, a consultancy specializing in the hospitality, leisure and travel industries on a global basis. Before forming AM Steinberg Advisors, Steinberg was Advisor to the CEO of NagaWorld Limited, where he led all international development efforts, including assessing market potential, identifying operating partners and sourcing opportunities to develop land-based casinos in the ASEAN region. He also researched and presented findings to the CEO and Board of Directors on incremental distribution channels. Prior to joining NagaWorld, Steinberg was with Spectrum Gaming Group and Spectrum Gaming Capital.

Filling international visitor gaps

Jurisdictions around Asia are noting a strong surge in domestic tourism as a result of the pandemic, but border reopenings remain some way off and local traffic is unlikely to do enough to offset lost revenue in the IR industry.

Speaking at the recent Destination Mekong Summit, leading officials from the region outlined the impact the Covid-19 crisis has had on their respective tourism industries and the measures they have implemented to mitigate the effects. They also spoke about how their respective countries are approaching opening up their borders again to international visitors.

Dr Han Van Sieu, Vietnam’s vice chairman of the National Administration of Tourism, said the country had seen a 62.4 percent drop in the number of tourists visiting, which has hit the country’s small and medium-sized tourism businesses the hardest.

The government has implemented a package of measures to alleviate the pain, including a five-month suspension of tax and land rental fees, the provision of low interest loans and a 20 percent discount on electricity tariffs. It has also cut takeoff and landing fees by half.

Vietnam was quick to bring the pandemic under control and began opening up to domestic tourism in April, with a major marketing push to get people moving again. He said the campaign had been a success before a second wave hit in early August, forcing a step backwards.

In June and July, domestic tourism numbers were close to their normal levels, with destinations in Danang and Phu Quoc running at about 20 percent above their 2019 levels.

Phu Quoc island hosts the Corona Resort & Casino, which is the only one in Vietnam currently permitted to allow locals to gamble. Recently the Ministry of Finance said 45 percent, or 47,000, visitors to the resort last year were locals.

Danang is also home to several casinos, though only Vietnamese holding foreign passports would be permitted to enter.

The major focus for the government at present is on reactivating domestic tourism again, although Dr Sieu said that talks are beginning on how to establish travel bubbles with destinations considered as “safe,” or which had had similar infection levels to Vietnam.

These include Japan, China, Taiwan, New Zealand, Australia and South Korea, he said, but gave no timetable for a potential reopening.

According to figures from ForwardKeys analysing flight searches, domestic travel interest across Asia has surged during the pandemic.

In Thailand 67 percent of travel searches in June for the second half were related to domestic destinations, compared with just 21 percent last year, while in Vietnam it was 61 percent compared with 15 percent.

We will look at opening up certain areas and if it goes well, we will open other areas in due course.

Cambodia, which has also had a low infection rate, is also gradually opening its tourism facilities and casinos. NagaCorp in Phnom Penh opened on July 8th and has said it has seen positive numbers, whilst resorts in Sihanoukville have also been able to open their doors.

NagaCorp said for August, its gambling revenue was close to pre-lockdown levels due to pent up demand from Chinese expats living in Cambodia. VIP rollings were running at 98 percent of their prior levels, while main-floor buy-ins stood at 90 percent.

Like Vietnam, however, locals are not permitted to gamble in the casinos and the doors remain closed for foreign tourists.

Minister of Tourism Dr Thong Khon said that Cambodia is working on plans to create travel bubbles, but that is not expected to happen until 2021.

Overall in Cambodia, domestic tourism is down about 10 to 15 percent, but he did see signs that on major holidays demand is picking up. The five-day Khmer New Year holiday was held in August this year, having been pushed back from its usual date in April. During the festivities 1.4 million Cambodians travelled to domestic destinations, generating $100 million in revenue.

Thai senator Weerasak Kowsurat struck an upbeat note for tourism in the Southeast Asian region, predicting that “there will still be carriers and there will be people sitting in them.”

In the meantime, Thai resorts are also getting support from local tourists, with hotels in Hua Hin and Pattaya completely full.

He said resorts that were close to major cities were benefiting from locals taking long weekend breaks.

When it comes to reopening international borders, Thailand is considering a slightly different approach and is looking at opening up two of its islands — Koh Samui and Phuket — to tourists. The plan had been to begin Oct. 1st, however, fresh cases look to have delayed the process.

“We will look at opening up certain areas and if it goes well, we will open other areas in due course,” he said.

Panel moderator Steven Schipani of the Southeast Asian division of the Asian Development Bank praised the efforts taken by the various governments to support their tourism industries through the crisis and to retain jobs.

However, he noted that domestic tourism will not be able to fill the vacuum created by a lack of international visitors.

“Until we can reestablish international visitation we are going to have a hard time,” he said. “Last year the talk was about over tourism and now it’s the opposite. We now have the opportunity to do things differently.”