Casino operators to boost Japan's lacklustre loan sector

In targeting Japan as a new source of revenue, foreign gaming firms are set to raise US$30b

PUBLISHED : Monday, 17 March, 2014, 2:27am
UPDATED : Monday, 17 March, 2014, 2:40am

Deal-savvy casino operators are in fine shape even if Japanese consumers are increasingly doubtful about the benefits of Abenomics.

The likely site of the next lavish casino complex in the cash-rich nation has been on the minds of bankers ever since a consortium of foreign casino operators announced their interest to compete in the maiden market. They include US-based Las Vegas Sands and MGM Resorts, as well as Malaysia's Genting and Melco Crown Entertainment.

The foreign casino operators are set to raise at least US$30 billion, providing a much-needed boost to Japan's lacklustre domestic loan market which has been hamstrung by the private sector's reluctance to boost capital spending and wages, crucial steps to the success of the ongoing economic stimulus programme.

The domestic loan market has been hamstrung by Japanese firms's reluctance to invest

Broker CLSA estimates the Japanese gaming market could be worth US$40 billion per year, making it the world's second-largest gaming hub after Macau, the only place in China where casino gambling is legal.

The growth opportunities in Japan should provide a win-win situation for the Shinzo Abe administration and the casino operators.

Given the latter's sound track record in casino development in Macau and Singapore, they should be well-placed to soak up the vast capital in the country's banking system.

Major Japanese corporations, which own more than 225 trillion yen (HK$17 trillion) of low-yielding Japanese government bonds, have more cash than debt.

Yet they are reluctant to increase capital spending and raise salaries, which has been a drag on the economy's recovery.

Given the sluggish economy, the Bank of Japan is likely to adopt a weaker monetary policy for the foreseeable future, with another round of monetary easing expected in October.

As a result, the funding outlook is fairly positive for newcomers, especially those with heavy exposure to real estate development.

According to Dealogic, Japanese jumbo loans, defined as US$1 billion or more, fell 25 per cent to US$144 billion last year from US$192 billion in 2012, even accounting for a sizeable US$4.7 billion loan from Sony.

On top of reduced borrowings by major corporations, Japan's consumer confidence level last month fell sharply from 40.5 to 38.3, the weakest level since Abe took office in December 2012.

Under a prolonged ultra-low interest rate environment, Japanese lenders, which continue to prop up overly indebted "zombie" firms to prevent them from going bankrupt, posted an average return on equity of 5 per cent.

Propelled by the momentum towards legalised gambling, bankers and casino operators will be looking for further clarity next month when Japanese lawmakers begin parliamentary debate on the issue.