Fitch: Inability to Serve Locals Constrains S. Korea Casino Projects

NEW YORK--(BUSINESS WIRE)-- Expansion projects in South Korea will have difficulty achieving robust returns on investments due to the restriction on gambling activities to foreigners only, according to Fitch Ratings.

Foreigner-only large-scale integrated resort projects in South Korea will face competitive pressures from other Asia-Pacific jurisdictions such as Macau, Singapore, the Philippines and Australia. We believe this pressure will not abate as the first casino opened in Vladivostok, Russia in 2015, four new large-scale casinos are scheduled to open in Macau through 2017 and Japan continues to consider legalization.

Despite a confining regulatory environment, some operators have illustrated keen expansion interest. Mohegan Tribal Gaming Authority (MTGA), KCC Corp. and Incheon International Airport Corp. (IIAC) were selected for a license to build the $1.6 billion Inspire integrated resort (phase 1) at Incheon International Airport. The local Paradise Co. and Japan's Sega Sammy have a joint venture (JV) project under way. Caesars and partner Lippo have not yet begun their JV project, and the timeline remains uncertain. Genting Singapore is also pursuing a $1.8 billion project on Jeju Island.

Gambling volume from Chinese players has been on the decline amid the corruption crackdown and slowing economy. The 16 existing foreigner-only properties saw aggregate casino revenue decline by 10% in 2015. Still, the sole casino allowed to cater to locals (Kangwon Land) continues to see solid growth. Fitch believes chances that locals will be allowed to gamble elsewhere in the medium term are remote based on our conversations with the country's officials and incumbent operators.

Still, we believe the Incheon projects could be viable if the total number of projects moving forward remains modest and Japan's effort to legalize casinos fails to materialize. Incheon International Airport is one of the most heavily trafficked airports for international passengers in the world. By comparison, the Philippines has been able to develop a modest sized international gaming business despite its poor infrastructure. Additional benefits for expansion in Korea include low taxes and no restrictions on locals participating in non-gaming amenities. Non-gaming amenities such as retail and entertainment will appeal to the approximately 25 million people living in the greater Seoul area.

MTGA expects to contribute roughly $100 million in equity, which is fully funded following a $100 million unsecured note issuance in November 2015. We view the project as neutral to MTGA's credit profile, as the funds could have been utilized to repay higher coupon debt and partially address the $1.1 billion 2018 maturity wall. The maturity wall could be eased if certain conditions are met, most notably the 11% subordinated notes being refinanced. On the other hand, some of the equity could potentially be recouped through a development fee. Further, a management fee arrangement is likely and could provide some downside protection against possible lackluster performance. The project faces some execution risk, as South Korea is a new market for the U.S. tribal operator and Paradise/Sega Sammy's nearby integrated resort will be first to market in 2017. That said, the project, if successful, has significant upside for MTGA.

Fitch's gaming analysts visited Korea in May 2015 and met with various operators and the Ministry of Culture, Sports & Tourism (gaming regulator). A special report was published following the visit titled "Eye in the Sky Series: South Korea," which provides an overview and analysis of the regulatory structure, market drivers and pipeline of proposed expansion projects.

Related Research

Eye in the Sky Series: South Korea (Gaming Jurisdiction Surveillance Monitor)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866050

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160304005362/en/

Fitch Ratings
Colin A. Mansfield, CFA
Associate Director
Gaming, Lodging & Leisure
+1 212-908-0899
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Alex Bumazhny, CFA
Senior Director
Gaming, Lodging & Leisure
+1 212-908-9179
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Best Crypto to Buy Now Is Not ETH or SOL and Pepeto Proves Why Before
• From Whitelist to the Next Meme Wave: Apeing Eyes the Best Meme Coin Spot While Snek and Pepe Hold Their Ground
• Alibaba Group Announced Proposed Placing of New Shares in Hong Kong