S. Korea's Casino Drive Loses Steam Over China Risk, Tight Rules | Be Korea-savvy

S. Korea’s Casino Drive Loses Steam Over China Risk, Tight Rules

South Korea plans to give two casino licenses for an integrated resort project through an open bid. One of the proposed venues is on Yeongjong Island, a gateway island that houses Incheon International Aiport. (Image : Yonhap)

South Korea plans to give two casino licenses for an integrated resort project through an open bid. One of the proposed venues is on Yeongjong Island, a gateway island that houses Incheon International Aiport. (Image : Yonhap)

SEOUL, Dec. 4 (Korea Bizwire) -South Korea’s plan to open new casino resorts grabbed the attention of many investors eyeing wealthy Chinese clients at first, but the rush has cooled down significantly due to tough requirements and Beijing’s ongoing corruption crackdown, industry officials said Friday.

Seoul received applications for two integrated resorts with foreigner-only casinos until Nov. 27, seeking to get a bigger chunk of the Asian gaming market and boost tourism.

A total of 34 companies submitted requests of concept in the preliminary stage, but the real competition boiled down to six companies in three regions: four in Yeongjong Island, the western gateway that houses Incheon International Airport; one in Yeosu, a southwestern port city; and the other in Jinhae, a southeastern port city.

Big Chinese investors initially considered strong candidates were not included on the final list as Beijing’s anti-corruption campaign had a chilling effect on the gaming industry.

In June, Chinese authorities arrested 13 Korean casino managers and several local agents in the mainland, accusing them of enticing people to gamble in South Korea with free hotels and flights.

“The incident fueled uncertainty in the overall gaming industry because it is currently not clear how long Beijing will push the policy and how that could affect clients,” a senior official at one of the companies that proposed a resort on Yeongjong Island said, asking for anonymity.

“The strong crackdown may have served as a wake-up call for potential Chinese investors, who worry that joining the Seoul-led casino resort project could make a negative impression on the Beijing government.”

Casino operators around Asia have been aggressively courting wealthy Chinese clients, often through junket agents on the mainland, but the VIP gaming section was heavily dented by the recent crackdown.

The tight qualification standards also served as an entry barrier for potential operators.

Among the candidates, only two meet the investment qualification for a minimum outlay of 1 trillion won (US$863.5 million) except the land acquisition cost, at least $500 million from foreign investors. A certain amount of down payment and investment grade by global ratings agencies are also needed.

The resort should have at least 1,000 five-star hotel rooms and a convention venue as well as entertainment facilities and a shopping space. The gaming venue is limited to less than 5 percent of the total gross floor area.

Four candidates who couldn’t meet the requirements by the deadline submitted investment guarantees by potential partners instead.

A 15-member committee composed of government and industry officials is currently reviewing their proposals. The Ministry of Culture, Sports and Tourism is expected to select winners within three months.

“Specific schedules have not been confirmed yet. It will take some time until we could go over their applications containing investment guarantee and have representatives brief on their plans,” said Choi Eun-sang, a ministry official in charge of the resort project.

Those who are given the license should build the resort within four years, which would increase the number of casinos in the nation to over 20 in early 2020.

South Korea has 17 casinos with only one open to locals. Most of the current casinos are far smaller than those in Macau and Las Vegas, the world’s two biggest casino markets.

A consortium by South Korea’s Paradise and Japan’s Sega Sammy Holdings is building a casino resort to open in 2017. LOCZ Korea, a joint venture by Indonesia’s Lippo Group and Caesars Entertainment of the United States, is set to launch another in 2018.

It is widely believed Yeongjong Island is sure to have at least one license thanks to its geographical proximity. It is located less than an hour by express subway from Seoul, and for northern Chinese cities, it is closer than Macau, a gambling paradise.

A consortium by Mohegan Sun, a U.S. casino operator, South Korean chemicals maker KCC Corp., vied for a venue on the northwestern part of the island, with a proposal that starts with a $1.6 billion integrated resort and envisions $5 billion investment when completed.

Hong Kong-listed Imperial Pacific, which won a license to build an integrated resort in Saipan, submitted a proposal for a resort on the northeastern island, where construction is currently underway for two new resorts.

Global Gaming Asset Management (GGAM), headed by former Las Vegas Sands president William Weidner, and Ocean View, a Korean resort operator, also joined the race on the condition that they will fulfill the investment requirement later.

For less-visited southern regions, questions remain over the feasibility for the large-scale project and candidates’ execution capacity.

Although the two sites are located near regional airports, the number of passengers falls far below that of Incheon International Airport. It is also located far from the capital city, limiting their capacity to attract local clients to non-gaming amenities.

Booyoung Group, a mid-tier South Korean construction company, proposed a global theme park with a casino in Jinhae, 410 kilometers southeast of Seoul. A regional consortium applied for a venue in Yeosu, located 455 kilometers south of capital. Both of them failed to meet the investment requirements.

“It is questionable whether applicants in Yeosu and Jinhae can carry out the large-scale project as they plan and draw enough visitors to the resorts even if completed,” Kim Chang-kwon, a researcher at KDB Daewoo Securities, said.

While the rising Chinese middle-class is a boon for the industry, market watchers worry that a rising number of Asian casinos currently being built or scheduled in the coming years could add pressure on the Korean gaming industry down the road.

Singapore, the Philippines and Malaysia have stepped up efforts over the past years to lure gamblers from Macau, while Japan is seeking to ease casino regulations in hope of launching an open casino in time for the 2020 Summer Olympics.

“The demand from high rollers from China is expected to suffer next year as well due to the slowdown in the Chinese economy and the strong anti-corruption drive,” Kim said. “The project needs careful consideration on the future prospect of the overall gaming industry.”


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