Vietnam’s slow-moving legislative process, combined with the burden of the existing regulations, means the country’s full potential as a gaming destination won’t be reached until the next decade at the earliest, industry experts say.
Under current laws, Vietnam requires new casinos to be located in integrated resorts with a total investment of $4 billion and the government decides where they are to be sited. The gross gaming revenue tax is now 35 percent and only holders of foreign passports are allowed to enter casinos and electronic gaming parlours.
Although there has been a lot of speculation that there will be some relaxation of these rules, it now doesn’t look likely to happen for some time to come. Shaun McCamley, a partner in Global Market Advisors warned: “Due to the recent political changes across senior government positions, the gaming expansion debate will likely be placed on the backburner.
“My feeling is that the locals’ gaming issue will not be on the agenda until late Q4, or even early Q1 in 2017.”
Grant Govertsen, a Union Gaming analyst said the situation was not unusual: “We see this in jurisdiction after jurisdiction. They want the benefits associated with foreign investment, tourism, etc. but can’t seem to get across the finish line in terms of a legislative solution.
“The reality is that the gears of government always grind very slowly and these things take time. We hope that eventually they get to the right outcome.”
The Vietnamese government wants any new casinos to be sited in integrated resorts (IRs) in keeping with the official view that these developments are for general tourism, conferences and business meetings and don’t have an overwhelming focus on gaming. For the moment that also means not permitting casinos in central Hanoi or Ho Chi Minh City.
Despite the slow-moving regulatory progress, investor interest is there and projects are moving ahead. The 541-room Grand Ho Tram Strip opened in July 2013, the first of five resorts planned for the beachfront strip two hours from Ho Chi Minh City and is now in expansion mode.
Harbinger Capital Partners owns a majority stake in Asian Coast Development (Canada), the owner of the Ho Tram Grand project with Pinnacle Entertainment the minority partner. To mark President Obama’s official visit to Vietnam earlier this week, The Grand Ho Tram signed a memorandum of understanding with Cotec Construction to cooperate on a $75 million expansion of the integrated resort complex.
The MOU adds a further 559 rooms, increasing the total capacity at the resort to 1,100 rooms.
The Banyan Tree Group last year began a request for concepts process for a casino at its Laguna Lang Co property on the central coast. However, to date there has been no government approval to operate gaming facilities at the resort.
Building has also begun on a development in the south on Phu Quoc island, but again no government approval has been granted, while Sam Sheng, managing director of Double Square Consulting (Macau), said he is currently scoping sites for a gaming property on behalf of private investors.
But, as Shaun McCamley says, in the current environment investors are treading very carefully – and slowly.
“Until the new government heads settle in, growth will be slow. Approval has been given to allow slots into the international airports but, apart from that, nothing else appears to be on the radar.”
Grant Govertsen added: “The big operators are smart. There is no reason for them to commit billions of dollars in capital when the rules are likely to change at some point in the future. As such, we do not foresee any of the marquee gaming names going to Vietnam until the legislation is properly settled.
“Further, we do not think there will be notable interest on the part of the major gaming names unless the minimum capital investment requirement is slashed dramatically and/or locals are allowed to gamble.”
Scaled down expectations
Sheng said in a recent interview at G2E Asia in Macau that in his view, the optimal investment size for the Vietnam market under current conditions would be about $250 million, a far cry from the $4 billion initially mooted by the government.
Union Gaming’s April research note focused on what could be, over time, a model for IR development. The $500 million Hoi An development in central Vietnam has a target opening of early 2019. It is proceeding as a foreigners-only development between Hong Kong’s Chow Tai Fook and Macau junket operator Suncity with local partner VinaCapital.
In the three years before it opens the hope is that the restrictions on Vietnamese nationals will be lifted, and the area is a favorite playground for wealthy locals. “We would expect future phases [of development] – in order to reach the $4 billion minimum investment requirement – to come in the out years and to be “brought down” by residential sales,” the note predicted.
Partly underpinning this view is the belief that Vietnam will create a twin system of IR casinos that are only for foreigners-only and the other for locals with one each of the latter in the north, central and southern parts of the country.
Whatever the future, the present gaming scene is mostly centered on slot parlors which are allowed to operate in 5-star hotels.
“There is a very large expat community, as well as the Viet Kieu [overseas ethnic Vietnamese] community, that patronizes slot parlors in Vietnam. Being the only game in town, it makes sense that they generate decent levels of business,” commented Grant Govertsen, with Shaun McCamley noting that the large number of Korean, Chinese and other regional expatriates had “nothing else to play.”
Smaller casinos that were operating before the steep capital investment and IR rules were put in place appear to be thriving with their focus on niche audiences, although experts note that the headline GGR figures may not reflect the full story.
The foreigners-only Crowne International Club in the beach resort of Danang was said to be generating an eye-popping $9 billion per quarter in rolling chip revenue according to reports. The casino enjoys strong links with Macau with four flights daily into the city’s airport only 12kms away.
But Shaun McCamley questioned whether that business model is sustainable in the current climate: “The current anti-corruption drive is strictly enforced in China so no valuable players are sticking their heads up and travelling. The other big issue, whether you are a first- or second-tier, is the difficulty in collecting loans. Some are saying as much as 90 percent is now uncollectable.”
He added: “Unless a casino operator is willing to give substantial credit as well as unrealistic commission programs, no one is doing well in terms of EBIDTA [earnings before interest, taxes, depreciation and amortization]. It’s for this reason most operators outside of Macau will only report gross gaming revenue to the media.”
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