Tuesday, August 09, 2022

Saipan casino eyes 17Q1 debut despite finance delays


Imperial Pacific Holdings says its resort on the Pacific Island of Saipan will open in the first quarter of this year, despite concern over funding problems for the proposed $7 billion project.

The operator, which is currently working out of a temporary facility on the island, had initially planned a Chinese New Year opening, but in a recent stock exchange filing changed the wording about its planned debut to say the Imperial Pacific Resort will hold a soft opening in Q1.

The operator also added that construction of the resort is going smoothly, “with over 2,000 workers working around-the-clock to ensure early completion.”

Hong Kong-listed Imperial Pacific beat out rival Mariana Stars Entertainment to win the license to operate Saipan’s only casino in 2014. Shortly after winning the permit, the group more than doubled its planned investment, pledging to spend $7 billion on resort facilities. Many analysts expressed scepticism that the island, with its limited facilities and transport infrastructure, would be able to support an investment of that level.

The casino resort will include more than 200 gaming tables and over 350 slot machines. The 14-storey hotel building will offer more than 340 opulent hotel suites including 15 deluxe villas.

Saipan has generated a high level of curiosity among the global casino industry since Imperial Pacific opened its temporary facility at the end of 2015. The casino has been reporting a monthly VIP roll on a table per table basis greater than that of Macau. For the whole of 2016 the company reported VIP rolling chip turnover of $32.4 billion, with a monthly record high of $3.95 billion set in September.

Although the monthly returns have been positive, it hasn’t all been plain sailing. The large amounts of cash flowing through the casino raised eyebrows, with Bloomberg reporting the company was under investigation from the U.S. Treasury's Financial Crimes Enforcement Network.

“The rise of Saipan as a gaming jurisdiction has amazed many,” David Green, CEO of Newpage Consulting commented in a year-end round up. “Assuming the figures announced by the operator in its results statements are correct, it raises the question why it is that a Commonwealth of the United States can host such a successful China-facing operation, without any apparent response from either the US or Chinese governments?”

Imperial Pacific has defended the huge volumes. It noted a consistently strong patronage of its casino floor since 2016, with “visitor headcounts at never [being] below 300.”

“As there are only 38 gaming tables in the casino and each table is able to serve 5 to 6 customers at the same time, our service capacity has saturated. Each night, around 100 customers could not be arranged with a seat and had to queue or stand to participate.”

The operator has also hit a snag in raising financing for the resort, reportedly putting a bond sale on hold because investors were demanding a higher yield than the 10 to 11 percent it had been willing to pay.

Imperial Pacific had been seeking to raise between $200 million to $400 million, which was to play a key part in its financing for the resort.

Moody’s Investor Service in late November raised red flags about a funding shortfall, warning it may see a downgrade in its credit rating as a result.

"The review for downgrade reflects our concerns over Imperial Pacific's lack of funding to complete its Grand Mariana project due to a delay in the issuance of the company's proposed bonds," said Kaven Tsang, Moody's vice president and senior credit officer, at the time.

"The delay in the issuance could also trigger the risks of cost overruns and a potential termination of the company's gaming license," added Tsang. "The former concern will potentially result in more debt funding and the company's debt leverage could then exceed the original budget."

As the investment is funded mainly by the proposed bonds, the delay in the bond’s issuance have meant major shareholders have been providing interim shareholder loans to keep construction going.

However, Moody said it was a temporary solution and falls short of the amount to complete the project.

Fitch in January also downgraded the company’s rating to CCC, from the expected rating of B(EXP), citing the financing problems and the lack of junkets, which it says makes the company vulnerable to customer credit risk.

“Fitch believes IPI is on target to meet its construction deadline, but longer-term capex funding for the casino and hotel resort is not yet in place. Construction to date has been funded via short-term borrowings and internal cash generation. Failure to secure funding for the completion of both construction phases may further pressure IPI's liquidity,” it said.

The company has also recently seen its top management reshuffled with CEO Mark Brown moving on to take on the chairman’s position. The CEO job will instead be filled by chief operating officer Yiu Ling Kwong.

In an email to the Marianas Variety Brown denied reports he had resigned and said the move was part of a restructuring to make the company more efficient.



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