Asia’s gaming industry is on a roll and attracting a wider array of investor as dominant centre Macao continues expanding and as rival locations emerge.
Because casino developments are capital-intensive and can take 2-3 years to complete, gaming companies have historically tended to attract different types of investors with different needs over different phases of a development.
They have tended to raise funds in a cycle by issuing equity first and then high-yield or convertible bonds and, finally, by getting syndicated bank loans, industry experts say.
But what’s evident from the gaming sector’s capital raising efforts in 2013 is that an even broader range of names are now looking to get involved - a trend industry experts say is set to continue.
Non-Macau gaming companies have been particularly active in capital markets.
Take a few examples. Hong Kong-listed Summit Ascent in October raised $69 million through a share placement to fund a casino-resort project in Russia, while NagaCorp, a gaming and entertainment hotel complex operator in Cambodia, raised $156 million from a top-up placement in March.
Gaming firm Melco Crown Philippines in April raised $377 million from an equity placement to fund a casino in Manila.
“This year we need to highlight Philippines as there were lots of share placements out of the country,” said Jeff Zielinski, a partner of Hong Kong-based Azentus Capital Management, which invests in the gaming sector.
Speaking on Wednesday at a conference called “Latham & Watkins’ Gaming Finance in Asia”, Zielinski said he believes that the market will see more equity financings for alternative gaming centres outside of Macau, including Vietnam as well as in the Philippines.
“I think Vietnam has much potential. [People like] mainland China because of the nice weather and food, easy communication, as well as its good tourism services,” said Tony Tong, a co-founder with PacificnetVentures, who once served as a consultant for gaming operators.
Other industry experts cite the potential for gaming growth in Russia, Japan and South Korea.
The emergence of new gaming hubs in Asia, though, is unlikely to threaten Macau, China’s only legal casino centre, which has comparable strengths in terms of advanced facilities, a friendly policy environment, stable revenues and strong cash flows.
Macau, which is already home to 35 casinos, is poised to build 8 more and is seen as likely to rely on syndicated loans for fresh funding.
The 8 projects in Macau will bring a 30%-35% return-on-invested-capital in five years, which is still a decent return to investors in high-yield (bonds), bank loan or equities, according to Billy Ng, head of Asia gaming and lodging research with Bank of America Merrill Lynch.
“Macau’s gaming companies can use the existing projects to [generate] cash for expansion and are able to get cheap bank loans,” said Merrill’s Ng. He added that the borrowing costs for bank loans are relatively cheap at around Libor plus 150bp-200bp.
In addition to the big international banks, more Chinese state-owned banks are now also becoming more active in the sector, experts said, while Japanese banks are making enquiries and considering participation.
Galaxy Entertainment, which operates Hong Kong-listed operates Galaxy Macau, has three more projects to build in the next few years but may not pursue financing in the near future.
“At this point we do not see any financing needs. For our Phases 3 and 4 which [will be] coming in between 2016-18, we will take an opportunistic view for financing; however we have no intention to issue equity,” Robert Drake, chief financial officer of Galaxy Entertainment Group, told FinanceAsia.
“We are very excited to see more game-changing amenities coming into this expanding market, and believe that the most lucrative potential will still be in Macau for years to come,” said Drake.
