Company in focus: Bloomberry Resorts hedges China bet with South Korea move

Company in focus: Bloomberry Resorts hedges China bet with South Korea move

MANILA — Since raising $126 million in fresh capital in November 2014 to help fund an overseas expansion, Philippine gaming company Bloomberry Resorts has moved swiftly to fulfill that ambition. Nevertheless, investors do not appear keen on the strategy. Bloomberry’s shares have plunged by nearly 50% since the start of the year to 6.40 pesos on Sept. 21. Its market capitalization has been halved to 70.2 billion pesos ($1.51 billion).

From January to March this year, Chairman and CEO Enrique Razon struck three separate deals, highlighting his commitment to accelerate Bloomberry’s growth. Through its offshore unit, Solaire Korea, Bloomberry purchased the tiny islands of Muui and Silmi, near Incheon, and a hotel and casino on the island of Jeju.

Snake eyes 

In addition to racking up a 1.3 billion peso loss in the first half due to mounting costs, China’s anti-corruption drive targeting high-rollers has dimmed the outlook on gaming stocks, according to Richard Laneda, an analyst at COL Financial Group in Manila.

     The crackdown has dealt a blow to regional gaming companies, especially those in Macau, the world’s gambling capital and a top destination for Chinese gamblers.

     Philippine casino operators have not been spared. Shares of Resorts World Manila operator Travellers International Hotel Group, which is partly owned by Genting Hong Kong, have plunged 58.6% to 3.40 pesos, year to date, while those of Melco Crown (Philippines) Resorts, which owns the City of Dreams Manila, have shed 60.6% to 5.35 pesos.

     According to Laneda, around 20% of Bloomberry’s gaming revenue comes from Chinese visitors. To hedge its bets, the company needs to look elsewhere. In late September, the company will relaunch the Jeju Island property it bought in March, christening it the Jeju Sun Hotel & Casino.

     “This is our first operating overseas property and we exerted much effort to put in place the ambiance and amenities that would enrich gaming experience,” Razon said Sept. 14.

     The Jeju Sun has 208 rooms and 2,125 sq. meters of gaming space. It is much smaller than its sister hotel in Manila, the Solaire Resort and Casino, which has 500 rooms and around 18,500 sq. meters of gaming space.

     For now, the Jeju Sun is not expected to give much of a lift to Bloomberry’s gross gaming revenue, which grew 10% to 15.6 billion pesos in the first half, said COL Financial’s Laneda. Marcus Liu, an analyst at CLSA in Hong Kong, told the Nikkei Asian Review, “The reason [for] the acquisition is basically to gain a footprint in South Korea.”

Playing the odds

Bloomberry and more than 30 other companies, including Galaxy Entertainment Group, are competing for two gaming licenses the South Korean government is poised to issue this year, Liu said. The Philippine company could improve its chances by showing it has a casino up and running in the country, he said.

     And by opening a Solaire-branded facility, Bloomberry is also marketing its Philippine casino to South Koreans, and to the 14 million overseas tourists who visit South Korea each year. Around 1.2 million South Koreans visited the Philippines in 2014, the largest group among the country’ 4.8 million tourist arrivals last year.

     “If Koreans recognize the Solaire brand, then they might go to Solaire when they visit the Philippines” Liu said. “Bloomberry wants to make Solaire a global brand, not just a regional brand.”

     The Solaire, the first casino to open at the Manila Bay entertainment hub, booked a 4.07 billion peso net profit last year, its first time in the black. That was more than enough to bankroll the 1 trillion won ($859 million) minimum investment required to qualify for an operating license in South Korea.
 
     “Solaire is on a trajectory [of] growth and we are now slightly shifting our focus to other destinations,” Razon said in March. “Although this will happen in the next few years, it is good to start prospecting, and Korea is likely a choice because of its positive investment climate.” South Korea is actively promoting its gaming industry, offering a 10% tax rate on net casino revenue, much less than Macau’s 35% gaming tax.

     Razon, a 55-year-old old Spanish-Filipino, also runs International Container Terminal Services. ICTSI has port concessions in more than 20 countries. He has experience dealing with regulations in various countries.

By the boatload

A year after the Solaire’s opening in March 2013, Razon began preparing for an expansion, telling reporters that he was talking to a potential partner for a gaming venture in Japan, where a measure to legalize casino gambling is under consideration. He also expressed interest in Macau.

    Razon made his first overseas move in South Korea, where Bloomberry is banking on the islands’ proximity to other countries.

     Chinese tourists have been flocking South Korea. This year alone, 5.6 million tourists are expected to visit Jeju Island, prompting Bloomberry to push ahead with the investment. As relations have warmed between Seoul and Beijing, the South Korean government has relaxed visa requirements for Chinese visitors.

     Macau, another potential option for Bloomberry, faces strong headwinds, as President Xi Jinping’s anti-corruption campaign on the mainland continues. The island, which has stopped issuing licenses for the moment, is increasingly vulnerable to policy changes in Beijing.

     “South Korea is the most attractive market for Bloomberry,” said COL Financial’s Laneda. However, Fitch Ratings in May noted downside risks in South Korea’s casino industry. It relies heavily on Japanese, as well as Chinese gamblers, and assuming casinos are legalized in Japan, its players may try their luck at home.

     Back in South Korea, only one casino, Kangwon Land in Gangwon Province, is open to locals; the dozen or so other operators, including Paradise and Grand Korea Leisure, cater only to foreigners.

     Macau is trying to resolve its recent troubles. It is spending $20 billion to improve connections with Hong Kong, which will give tourists easier access to both, according to Fitch.

     Bloomberry may also be challenged by established casino operators looking to invest in South Korea. Genting Singapore, for instance, plans to open Resorts World Jeju between 2017 and 2019, the ratings agency said. “Foreign demand will be further pressured from the increasing competition in Vladivostok, the Philippines, Macau and Australia.” 

All in

But these challenges, including the prospect of a weaker Chinese travel market due to the slowing economy, may not last. The South Korean casinos are meant to be long-term concessions, according to analysts.

     In the fledgling Philippine gaming industry, casinos are starting to feel the heat of competition as new players crowd in. Melco Crown early this year began full-scale operation of the City of Dreams Manila, snatching some clients from Solaire and Resorts World.

     Travellers’ second casino, Resorts World Bayshore City, and Universal Entertainment’s Manila Bay Resorts — both at least $1 billion investments — are also being developed. They are expected add to the rivalry in the next two to three years.

     “The Asian gaming industry has become very competitive. Everyone wants to get a piece of the pie, whether in the Philippines or Korea,” Laneda said.

     Fitch, however, points to a silver lining. “We agree northern China remains underpenetrated, with less than 2% of northern Chinese visiting Macau in 2014, compared with 9% from Guangdong,” the ratings agency said.

     Asia can accommodate new entrants to the business, according to Liu. The U.S. has a thousand casinos catering to 320 million people, while Asia has a few hundred casinos catering to 4 billion people, he pointed out.

     “The overall trend is positive. People are getting richer, which [allows] them to do more things,” Liu said. “Asia is very underpenetrated when it comes to gaming.”

Company in focus: Bloomberry Resorts hedges China bet with South Korea move