A joint venture headed by Caesars Entertainment has won preliminary approval from the South Korean government to include a foreigners-only casino at a US$794 million integrated resort it plans to develop near the port city of Incheon and the country’s main international airport on Yeongjong Island.
LOCZ Korea Corporation—a partnership involving the Las Vegas-based casino giant (Nasdaq: CZR), Lippo Group, an Indonesian conglomerate listed on the Hong Kong Stock Exchange (0226), and OUE Limited, a real estate developer traded on the Singapore Stock Exchange (SGX: OUE)—are planning a project that will cover 4.3 hectares and 150,000 square meters of developable floor space encompassing three hotel towers with 760 rooms and suites and non-tourist amenities that include entertainment venues and a stand-alone convention center.
Caesars said they hope to open in time for the 2018 Winter Olympics in Gangwon province about 180 kilometers east of the capital of Seoul.
“It’s going to change the landscape of Korean casinos because it’ll be the first integrated resort-style foreigners-only casino,” D.S. Kim, a Hong Kong-based analyst at BNP Paribas Securities Asia told Bloomberg News. “The existing casinos in Korea are like gambling dens which do not offer any non-gaming amenities such as spa, restaurants or entertainment shows. They simply cannot cater for large groups of visitors.”
Caesars Chairman Gary Loveman said, “We are excited about the opportunity to expand our network and brands to Asia. Foreign visitation to South Korea has grown significantly, and we look forward to creating a world-class destination to further support Korea’s economic growth and tourism goals.”
“Korea is the optimal location to draw Chinese bettors,” Song Hak Jun, a professor in the hotel and convention management department at Pai Chai University in Daejon, told Bloomberg. “Everyone’s competing to absorb China’s outbound tourist demand.
The market, consisting of 17 casinos, all but one of which are off-limits to Korean nationals, generated US$2.7 billion in gaming revenue last year, according to research house CIMB. It was slightly higher than the Philippines’ $2.6 billion but well behind Singapore’s $6.4 billion.
In a recent report to investors, the Seoul office of UBS Securities said the government may select “three or four” foreign operators to join Caesars at the special resort district the government is sponsoring at Yeongjong, which lies about one hour’s drive from Seoul. One of them is expected to be South Korea’s Paradise Entertainment, the dominant operator in the foreigners-only market, which plans to develop a gaming resort of comparable size and cost in partnership with Japanese pachinko giant Sega Sammy Holdings.
The Ministry of Culture, Sport and Tourism is looking to the LOCZ project to deliver more than 890 billion won in tourism income ($830 million) and 8,000 jobs in the construction phase.
The ministry’s approval, a coup for Caesars, which missed out on the Macau casino boom and has no presence in Asia, does not guarantee a gaming license, however.
The government also nixed a bid by Japan’s Universal Entertainment, the gaming machine giant controlled by Kazuo Okada. Universal has not reapplied.
News reports over the last several weeks suggest the government is anxious enough for foreign investment to be considering loosening its requirements. It may also shift to an open bidding process instead of requiring prior approval at the ministerial level.
It’s believed that Caesars will own 40% of the venture, OUE 40% and Lippo 20%. A Caesars subsidiary, Caesars Growth Partners, may also get a share, the company said. CGP was spun off last year as part of a complex restructuring designed to attract capital to fund growth and shield some of the parent’s better-performing assets from the possibility that bondholders might move on them.
Caesars, which posted a net loss of $1.76 billion in the fourth quarter, largely as a result of write-downs connected with its US operations, recently bought itself some additional room to maneuver by selling four casinos to CGP for $2.2 billion.