The potential difficulty IR operators may face in securing debt for development of IRs in Japan as a result of legislated five-year license terms has emerged as a key concern for bidding parties.
Financing proved a common topic of debate at gaming conferences held in both Osaka and Tokyo last week with everyone from global giants MGM Resorts and Las Vegas Sands to regional bidders Hard Rock and Mohegan Gaming highlighting it as a major potential stumbling block to Japanese IRs becoming a reality.
“The one issue banks have raised is this notion of the five-year term of the debt piece and how much cash flow have you got to fully monetize that 5-year piece,” said MGM Resorts Japan CEO, Ed Bowers.
“Obviously you have to really consider how that happens: do you have to increase the equity or do you have to decrease the investment and what does that mean in the context of bidding to win this license? This issue has made the financing significantly less flexible.”
Operators fear the lack of security posed by a shorter five-year license, as opposed to the 20-year licenses granted to most of Macau’s operators, will squeeze most Japanese banks out of the equation due to the added difficulty in achieving the necessary returns.
Singapore’s license period runs just three years, but even the significant US$3.3 billion investments recently announced for expansion of Marina Bay Sands and Resorts World Sentosa are dwarfed by the US$10 billion-plus numbers being touted in Japan.
“There is also ambiguity with regards to whether the clock starts ticking on those five years from the time you are awarded the license, or from when you open the doors,” noted Global Market Advisors Managing Partner Steve Gallaway.
“For many of these facilities, it could take upwards of five years to open after being awarded the license. We assume this will be clarified when the regulations are written, in addition to other items that require clarity.”
Mohegan CEO Mario Kontomerkos expects that more creative financing options will be required.
“It adds a level of complexity that I don’t think folks really anticipated beforehand,” he said. “When you think of the size of the projects we’re talking about … then you layer on this idea of the five-year licensing threshold, I think what that means is the banks will be there but other tranches of debt will likely be required.
“You will have to have investors that are willing to take that risk and I’m not sure the national banks will be there for that.”
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