Primorye picks up development pace

The Russian gambling zone of Primorye, which has not been developing as fast as anticipated, is stepping up its efforts to attract more investors as part of an ambitious plan to almost treble visitor numbers by 2025.

The Primorsky Krai Development Corp. (PKDC) is seeking expressions of interest for three plots of vacant land and says it will hold an auction once it receives pre-orders from at least three companies. It has been in talks with groups from Russia and Europe and potential Chinese investors.  

The deadline for the expressions is technically August 28, though the company has the right to extend. It says the situation has been complicated as most of the investors so far have been interested in a plot of land currently leased to the Royal Time Group.

The development company terminated its contract with Royal Time in June after repeated construction delays of its Phoenix IR. Only 2 percent of the first Phase A of the project had been completed by a December 16 deadline.

However the developer has appealed the decision to terminate the contract and a further court hearing is scheduled for Sept. 14. PKDC said depending on the outcome of the hearing, these lots may also be added to the auction.

Before President Vladimir Putin shut down all casinos in Russia in 2009, the country generated about $3.6 billion in annual gross gambling revenue. Gambling is now only permitted in five relatively remote zones, which were deemed in need of foreign investment.

Most are struggling to get off the ground, though Primorye, thanks to its proximity to northern Asia, has attracted more interest. According to a study by Ernst & Young, commissioned by the PKDC, the zone has the potential to generate $2.2 billion in GGR by 2025. Global Market Advisors has set a range between $2 billion and $7 billion.

“Our plans (are) to make the territory of 619 acres not a gambling zone, but an integrated entertainment resort, a City of entertainment,” PKDC director general Andrey Folomeev said in an email. “It will become a place for both family members and lovers to take a drop of whiskey while playing poker. For old ones and young ones - for everybody.”

The zone is just over two hours by plane from Beijing, Tokyo and Seoul, giving it access to a population of about 400 million in the northern Asia region. According to Daiwa Securities, Northern China accounted for 21 percent of China’s high net worth individual population in 2014 but only 6 percent of Chinese visited Macau in 2014.

“We believe there remains a large amount of untapped gaming demand in cities within a three-hour flight time of the Primorye Integrated Resort,” Daiwa said.

PKDC and other investors have committed to invest up to $2.17 billion roubles in improving supporting infrastructure, such as transport links and other engineering projects.

The development company points out that Primorye offers attractive incentives for investors, such as one of the world’s lowest taxation regimes. There are also proposals to allow the resorts to operate Duty Free Stores, while air links are rapidly improving, especially to China.

By 2022, when the eight facilities in the first phase are supposed to be fully operational, the company projects about 20,000 people will be employed in the resorts, with total employment creation of 30,000 once related industries are factored in.

It sees an increase in the annual volume of tax deductions to the federal budget by 950 million rubles, and of 7.8 billion roubles to the regional budget of the Primorsky Territory.  

However, it is counting on a significant increase in tourism numbers to achieve its goals. The zone projects total tourist arrivals of 8 million by 2022, helped by a simplified visa process that went into effect on August 1. The new procedure covers arrivals from 18 countries, including China.

“With sufficient infrastructure and a number of rooms, we can expect to visit about 18 million people per year,” Folomeev said. “So far only 3 million foreigners are arriving, but by 2025 it is planned to increase this figure to 8 million a year. And this is only to Primorsky Krai.”

This week, local media reported that The Russian Ministry for the Development of the Russian Far East has begun drafting amendments to the law on gambling, aimed at streamlining management to speed the pace of development. The Far East Investment and Export Agency will now be tasked with attracting new large international players to the project.

The three plots of land currently on the block all set out minimum investment limits and table and slot allowances. Plot 1 seeks a minimum investment of $120 million, for a hotel and a casino with up to 300 tables and 50 slots.

Plot 2 envisages minimum investment of $210 million for two hotels and casinos. The first is to have 220 rooms and can have 500 tables and 50 slots. The second hotel must have a minimum of 50 rooms. Plot 3 calls for investment of $300 million with 500 gaming tables and 100 slots.

So far, Hong Kong-listed Summit Ascent has the only operational IR in the zone, having opened its Tigre de Cristal in November 2015. However, the ramp up was slow, with fewer tourists than expected and a limited appetite from locals for the gaming offerings. The company also said illegal gambling had hurt its operations, forcing it to scale back the number of slots and tables it was offering. In the quarter to end March, the $200 million resort on average had 12 VIP tables open and 20 mass, with 319 slot machines. That compares with an opening of 651 slots and 67 tables.

To address the problem, the Primorye development company said a hotline has been set up to report cases of illegal gambling.

Summit Ascent it now sees improving business conditions, helped by better transport and the new visa scheme. By the end of 2016, the company had contributed a total of half a billion rubles in terms of tax revenues and had attracted half a million guests, with just over a third of those from overseas.

Rolling chip turnover at Tigre de Cristal rose from approximately HK$3.5 billion ($447.3 million) in 1H2016 to approximately HK$10.6 billion in 2H2016.

It is now reviewing designs for the $500 million second phase, which it will carry out with South Korea’s Kangwon Land. This phase is expected to open in the second half of 2019.

Hong Kong listed NagaCorp is constructing the biggest resort in the zone. In April of this year builders started the second stage of excavation and are planning to approach the completion of the facility in the beginning of 2019.

It will be an 11-storey hotel complex with a 279-room hotel room, a casino and a concert hall of 2000 square meters. The total area of ​​the facility is almost 55 square meters. In the next stages of construction, the company plans to increase the number of rooms to 2,440 rooms until 2021, as well as to create an indoor water park, restaurants, a casino and related entertainment services. It is the only facility that is located on the shore of the bay and there is an access to the beach.

Russian investor Diamond Fortune Prim is also scheduled to open its Selena facility by 2019. Diamond Fortune is the largest investor in Primorye, with planned investments of $914 million in four separate complexes, one of which will include a ski slope. Selena is scheduled to open with 500 slot machines and 100 tables.