Tigre de Cristal counts on unique position, tourism under penetration

Summit Ascent Holdings is counting on the under penetration of the North Asian markets and its head start in the Primorye gaming zone to ensure the success of its new Tigre de Cristal property in Russia’s Far East.

 The casino held its gala opening earlier this month and Summit is optimistic about its prospects, despite a slump in China’s VIP market.

 The slide, triggered by Beijing’s crackdown on corruption, has raised question marks over the viability of some planned projects in the Asia region, which would have been highly reliant on the China market. For example, NagaCorp and Grand Korea Leisure recently chose to withdraw from bidding for a license in South Korea, which was also targeting northern China, on concern about profitability.

 However, Eric Landheer, Director - Corporate Finance and Strategy of Summit Ascent Holdings told AGB that Tigre de Cristal has a unique market position and is one of the only true integrated resorts in northern Asia.

 "Vladivostok is arguably the most European city in Northeast Asia. Its infrastructure - airport, roads, bridges, and cultural facilities - are much better than most frontier gaming markets,” he said.

 As its name suggests, Tigre de Cristal highlights three key components of the region: Tigre referring to Amur Tiger, a symbol of Russia's Far East, Cristal mirroring the Russian winter and the French language to impart a European feel.

 The luxury hotel is built in a modern style, with crystalline and marble features, though some areas are Chinese in feel. Each room is decorated with modern art pieces, which are expected to appeal to foreign visitors, both from China and elsewhere.

 Citi Research has estimated that the Primorye market could reach $1.7 billion by 2020. While Primorye Territory Vice Governor Sergey Nekhayev also expects strong growth, estimating that tax revenues from the zone will reach 165 million rubles in 2016, more than 700 million per year  by 2019 and about 2.5 billion roubles per year by 2022.

 The zone has one of the most favorable gaming tax rates in the world at 1.3 percent, Citi says.

 Around 400 million people live within a three-hour flight radius of Vladivostok. Northeastern China and North Korea, for example, are within 600 km of the IEZ, roughly a one-hour flight. Beijing, South Korea and Japan are within a 2.5-hour flight radius.
Landheer cited estimates showing that Northeast China has approximately a 1.5-2.5 percent visitor penetration rate to Macau and Korea combined. However, Guangdong, which neighbours Macau has a 15 percent penetration rate. The figures show how proximity may be key in attracting tourists.
The $172 million Tigre de Cristal has a 5-star hotel and a gaming floor of around of 15,000 square meters. There are 121 hotel rooms, 650 gaming machines and 67 gaming tables (25 VIP tables and 42 mass market tables) including Blackjack and Roulette.

 The nightly rate for most rooms at the hotel ranges from $200 to $400 per night. Compared to the Hyundai Hotel, a luxury hotel of a similar tier in the city center, Tigre de Cristal is $100 more expensive on average.

 The hotel's other facilities include several F&B outlets ranging from an all-day-dining cafe to a steak-and-seafood restaurant and an Asian fusion restaurant. There will be also a karaoke lounge, spa and gym, jewelry shop and convenience store early next year.

 The property is around 50 km away from the city center and the trip costs approximately 1,000 rubles (approximately $15) by local taxi. Tigre de Cristal also offers complimentary transfer between the airport and the property for its foreign visitors.

 Currently there is no main road connecting Vladivostok International Airport and the Primorye Integrated Entertainment Zone (IEZ), which are only 15 kilometers apart. However, there is an expressway currently being constructed by the government linking the two, which is slated to be completed early next year and is expected to reduce the commute time from its current 30 minutes to between 10 to 15 minutes.
In the next phase of development, Summit Ascent plans two hotels - one four-star and one five-star - with a gaming floor two to three times bigger than the current one, more retail offerings, conference facilities and other non-gaming amenities. Details of the second stage are likely to be announced in mid-2016.

 Landheer said the casino will benefit from a more diverse base of target customers as, unlike in South Korea, locals are able to gamble.

 Tigre de Cristal also has a first-mover advantage. While NagaCorp, Royal Time Primorye and Diamond Fortune Holdings Prim all have planned projects in the zone, the next property is not expected to open until 2018. All projects from the four investors are expected to be completed by 2022.

 Landheer also said there was one more potential investor, without disclosing further details.

 "While we welcome competition with other properties in the Primorye IEZ in future, we also expect to benefit from the fact that we will have an effective monopoly in the zone for the next few years," Landheer said.

 Operating in the zone is not without its challenges. The opening was delayed several times due to customs delays, the commissioning of heating and ventilation systems as well as compliance with Russian commissioning procedures and regulations.

 "The biggest obstacle was to get the property built but now it is over," Landheer said, but he added that a shortage of skilled gaming labor is also a challenge.

 According to Hong Kong Stock Exchange filings, Tigre de Cristal expected to have approximately 1,250 staff but the local market does not have a ready pool of skilled labor, such as dealers. Despite this, Tigre De Cristal has received more than 15,000 applications

 Instead of hiring from overseas, Tigre de Cristal has chosen to employ locals who are "young, educated, intelligent, and ambitious,”, but the company needs to train them from scratch.

 Landheer explained: "We want to show the local community that we create employment opportunities. At the same time, it makes better sense financially to hire locals especially given the weak rouble. Importing dealers from Macau is not the answer."

 The second challenge is how to market the property because advertising of casinos and slot facilities are prohibited under both Chinese and Russian law. According to Landheer, Tigre de Cristal plans to work with local government to promote the Primorsky Region as a tourist destination with the property featured as one of the major attractions.

 He said the company is leveraging social media to promote the non-gaming elements of the property and is also considering a partnership with a tour agency.

 As the Russian government is very keen to boost tourism, the visa policy is getting more tourist-friendly, he said.

 For instance, South Korean visitors can enjoy 60-day visa free visit, while Chinese tour groups with more than five people can visit Vladivostok without a visa for up to 15 days. The local government may also go one-step further and is expected to begin granting visa upon arrival for individual visitors from China from Jan 1st, 2016 as part of its “free port” initiative.

 According to the tourism department of Primorsky Krai, the region was visited by 135,894 tourists in the first half of 2015, which is 13.6 percent more than in the same period last year.

 Another concern for operators in Russia is often unpredictable policy changes from Moscow.

 The capital was once the most profitable hub in a $7.8 billion market, but a decree in 2009 banned gambling except for in five specially designated zones, forcing many foreign investors to flee the market.

 Earlier this year the Russian government also announced the closure of one of those zones, the Azov gaming zone.

 But, Landheer says, it’s unlikely to cause problems in Primorye.

 "The Primorye IEZ has the best location among five gaming zones in Russia and also the most substantial foreign investment. As Russia is now looking to diversify its economy, the Primorsky Region - given its proximity to the lucrative Asian market - will prove itself of strategic importance to Russian economy. Drastic changes that discourage foreign investment in the IEZ will be very unlikely."