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Fitch: Ten-year license “biggest obstacle” to financing

Fitch Ratings has conducted a tour of Japan and offered a “special report” revising some of its previous estimates about the prospects for the Japan IR market, but it also raised a warning flag over the implications of the IR license renewal system.

“Pretty much everyone we talked to agreed that the ten-year license renewal presents the biggest obstacle to securing bank financing,” Fitch reported, “Japan’s gaming law presents several facets of risk, including political risk; notably, the local government (including the legislative branch) must actively seek renewal every ten years.”

Fitch also expressed some concern about Return on Investment (ROI) rates: “The IRs in Japan are far from slam-dunks in terms of generating a decent ROI (EBITDA/cost), which we think of as roughly 10 percent or higher. Besides the higher gaming tax rate that we were well aware of before our trip, operators will have to deal with high development costs and bureaucratic red tape.”

On the positive side, however, Fitch upgraded its estimate of the total annual Japan gross gaming revenue from US$7 billion to over US$10 billion, explaining that “we no longer think that casino floor size will be a major inhibitor as operators will have considerable leeway under the regulatory limit.”

Last month, Bernstein Research projected that Japan’s IR would produce US$7 billion to US$8 billion in gross gaming revenues, as well as several more billion contributed by non-gaming revenues.


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