Doubts raised over US$7.1b plan for Imperial Pacific's Saipan casino

Imperial Pacific plans to build a large resort on a remote Pacific island, but analysts are concerned about its chances for success

PUBLISHED : Monday, 15 December, 2014, 5:37am
UPDATED : Monday, 15 December, 2014, 5:37am

Gaming industry analysts are questioning the viability of a US$7.1 billion investment by Imperial Pacific International to build the first large-scale casino resort on Saipan.

In August, the Hong Kong-listed firm was granted a 25-year licence to build and operate a casino on Saipan, the largest island of the Northern Mariana Islands, with an option to extend for a further 15 years. The following month it more than doubled its original budget for the complex to US$7.1 billion with plans for more than 4,200 hotel rooms and 1,600 gaming tables.

In comparison, Las Vegas Sands tycoon Sheldon Adelson said in February he would be willing to invest US$10 billion in Japan should the country proceed with plans to legalise casinos. Budgets for casinos in Macau or Singapore are typically US$3 billion to US$4 billion.

"Imperial will get their junket room that they can fly VIPs to," an industry source said. "The government gets money so they can pay their people the back-wages that they owe. But they're not going to invest US$7.1 billion."

"They're going to say 'Oh, the situation has changed'… and it will drag on for 20 or 25 years."

The casino deal would provide a steady source of income for the Saipan government. Imperial Pacific agreed to pay an annual licence fee of US$15 million, adjustable for inflation.

The company, backed by Hengsheng Group, one of Macau's largest junket operators, also agreed to create a community chest with an initial contribution of US$10 million to be distributed to locals.

The company said it would pay US$20 million within 60 days of starting construction on its first hotel and US$20 million a year after the first full year of operation of the first hotel in the proposed integrated resort.

The Northern Mariana Islands' economy is reliant on financial aid from the US, according to data from the CIA.

Imperial Pacific said it planned to finance the project through equity and or debt financing, but except for unsecured borrowings of HK$220 million, "has not yet formulated any concrete fund-raising plan." It said construction was expected to start early next year, with the first hotel opening in 2016 and the launch of the resort in 2018.

However, gaming analysts are puzzled over how the company plans to make it financially viable in a location distant from mainland gamblers. Saipan is a five-hour flight from Shanghai.

"I don't think anyone believes that a seven billion [dollar] investment would make sense in a place like Saipan. It's unclear what type of revenue they would be able to generate and returns on investment [achieved]," one equity analyst said.

"Ultimately it would be up to a junket's willingness to bring players from all over mainland China. It's not a short flight, but compared to other destinations like Australia, it's still doable. It depends on the junkets they have working with them to divert players from other markets."

A gaming private investigator added: "Some of Macau's most successful junket operators were approached but nobody said yes to it so far."

Imperial Pacific chief executive Mark Brown declined to comment. Imperial appointed Brown to its top job on November 10. He comes from Cambodian casino operator Nagacorp, which he joined in December last year but resigned from just 11 months later to head up Imperial.

"They paid him a year's salary upfront before he would take the job," an industry source said. "Nagacorp is not impressed."