Foreign ownership limits may hinder Japan returns

Monday 15th of May 2017

Japan is unlikely to allow foreign investors to own 100 percent of an IR, which may hinder potential returns and Tokyo's ability to achieve its tourism goals, analysts said.

“We are pretty certain that anyone who is looking for 100 percent ownership will be disappointed,” said Morgan Stanley Asia managing director Praveen Choudhary at G2E Asia.

Speaking on a panel, Choudhary said that the Japanese government now seems to be suggesting that cities partner with an operator to make their pitch to the central government for a casino license. Given the limited number of locations that is likely to mean operators will do whatever it takes to get their foot in the door, he said.

“What we hear before was that whatever it takes means billions of dollars of investments, but now whatever it takes means that I will take a smaller position as long as I am one of the larger groups.”

He said Morgan Stanley now believes that the likelihood is for consortiums of up to five groups. In a separate report, the firm said the likely ownership structure would be 40 percent for the lead foreign investor, 40 percent for the Japanese partner and 20 percent for other local partners.

Union Gaming managing director Grant Govertsen, speaking on the same panel, said this higher level of local ownership could prove to be an impediment to Japan achieving its goals to boost tourism numbers from the current annual level of about 20 million to 60 million.

“If you really want a high degree of local ownership, you don’t have that expertise among local companies in terms of developing fully fledged IRs that are capable of driving that level of visitation.”

Japan’s casino market is expected to rapidly become one of the largest in the world, though details of its structure are still undecided. The government is expected to draw up a bill setting out points such as how many IRs will be allowed, taxation and entrance fees for locals, by the end of this year.

Morgan Stanley expects two IRs to be allowed in major cities, with a third regional IR. It says the two most likely major cities are Osaka and Yokohama, depending on the outcome of mayoral elections in the latter in August. The regional favourite, according to Morgan Stanley, is Sasebo in Nagasaki.

Bricks & Mortar IRS Consortium G2E Asia ROI