Vietnam spiking investor interest, smaller operations thriving

Published in: Latest Intelligence Vietnam’s appeal to foreign casino investors has taken a knock in recent years after problems at two high-profile projects hit the headlines, but smaller casinos have been quietly thriving and a flurry of recent announcements may reawaken interest in the country’s potential.
Vietnam currently has seven licensed foreigner-only casinos and allows a limited number of slots in five-star hotels for the most part in the capital Hanoi and in Ho Chi Minh City. There are also Electronic Gaming Clubs in Da Nang and Vung Tao.  
Five casinos are in the north of the country, mainly on the coast or close to the Chinese border, with the biggest currently at Halong Bay, some 150km from Hanoi, which boasts 18 live tables. Lao Cai Casino, owned by ASX-listed Donaco International Limited is due to open a new property with at least 26 tables before April.
The remaining two casinos are located in southern (Ho Tram) and central (Da Nang) Vietnam.  
Mike Bolsover, Chief Executive Officer of Asian casino operator Silver Heritage Limited estimates the market at US$275m - US$300m of GGR per annum from licensed casinos and gaming clubs in Vietnam. The casino industry is thought to have considerable scope for expansion, fuelled mainly by the potential to attract Chinese high-rollers. At present, Vietnam only has a 0.1 percent share of Asia’s gross gaming revenue, compared with 3.3 percent for the Philippines, according to Fitch Ratings.
The economy is buoyant with GDP growth projected at 5.5 percent this year, making it one of the best-performing in the region. And while at present locals generally aren’t permitted in the casinos (only those Vietnamese holding dual nationality can enter), operators in the country express optimism that policy will change and lift a potential restraint on the market.
Total international arrivals in the first 11 months of last year rose 10.2 percent to 6,850,003, with Chinese visitors rising to 1,726,123, though Russians still make up the lion’s share of the tourism market.
Donaco International recently announced a major step forward in developing its Lao Cai International Hotel joint venture in the north of the country bordering China’s Yunnan province.
The company, which currently reports gross gaming revenue of about $40 million per annum, is boosting its stake in the venture by a further 20 percent, taking its total holding to 95 percent. The Vietnamese government will hold the remaining equity interest.
Donaco said the venture’s new five-star project, which features 428 hotel rooms and three restaurants being built on the site, is on track for a soft opening in March this year.
In announcing its increased stake, the company also disclosed it has won approval from the Vietnamese government for 26 (up to 50 in the future) casino tables, making it the largest venue in the north by licensed live table numbers.
Its license will also be reset to 30 years, resulting in the license expiry being 2044 vs 2032 currently.
The project’s potential triggered an upgrade from analysts at Canaccord Genuity, who raised their 2014 and 2015 EPS targets for the company on the back of the Lao Cai news. The firm now expects 2014 EPS of 2.8c and 2015 to 7.8c.
The Lao Cai project is dependent on visitors from China, with about 45.9 million people living across the border in neighbouring Yunnan province and 80 percent of revenue from high rollers. The casino, which has relations with more than 20 junket operators, is expected to benefit from improved infrastructure, including a new expressway that will cut the travel time from the Yunnan capital Kunming to four hours from seven.
A new highway between Lao Cai and Hanoi is also likely to help the company to attract more visitors away from the Vietnamese capital.
After a period in limbo, VinaCapital now also appears set to move ahead with its plans for a $4 billion integrated resort development South of Hoi An, in the central Vietnamese province of Quang Nam, finding a partner to replace Genting Malaysia.
The project’s future had appeared shaky since Genting, which held a 20 percent stake, pulled out in September 2012.
VinaCapital has not yet officially named its investment partner, but officials have said it has good financial capacity and strong management experience. Local press reports have indicated the investor as Casinos Austria.
The project, known as South Hoi An, will include five-star hotels and luxury residences and will be the largest tourist destination in Quang Nam, which is already home to several resorts on the South China Sea coast. It was downscaled last year from 1,500 hectares to 1,000 hectares after VinaCapital struggled to find a replacement for Genting.
In a further sign of foreign investment interest, Rockefeller family-backed Rose Rock Group will help develop a $2.5 billion residential and hotel project on the south-central coast of Vietnam consisting of 350 marina berths, hotels with more than 760 rooms, residential apartments and retail shops.
Investors are also excited about the prospects for the market in Danang, which currently boasts one casino, the Crowne Plaza now known as Silver Shores, in addition to an electronic gaming club located at the Furama Hotel. The coastal city has the third-largest airport in Vietnam and is only an hour and a half away from southern China. It also enjoys strong ties with Macau and China junkets.
Meanwhile, the troubled The Grand Ho Tram project, developed by Canadian company Asian Coast Development Ltd., finally opened its doors in July last year, after a series of construction and licensing delays.
Vietnam’s largest and first luxury integrated casino resort was scheduled to be managed by MGM International, but the casino giant pulled out of its contract earlier in 2013.
The 541-room Grand’s gaming facilities include over 600 slot machines and 90 live tables. The Grand is targeting visitors from China, Russia, Hong Kong, Korea, Taiwan and Vietnam’s large overseas expatriate community.
A second phase of the resort, which will take total room capacity to 1,100, is under development with a targeted opening date in 2015. The project will also feature a Greg Norman-designed golf course.
However, some express doubt about the resort’s potential, especially given its high build cost.
The resort is some three hours from Ho Chi Minh City, adding considerably to travel time for tourists flying into the country, while the developers chose to build a tall city-style hotel on many floors, instead of opting for a beach-style resort consisting of more private bungalows and villas that tend to appeal to VIPs and junket groups.
Still, operators on the ground says it’s likely that one of these mega integrated-resort style projects (including a potential multi-billion USD project in Van Don, Quang Ninh province), will be used as a trial if the market is opened up fully to all local Vietnamese nationals.