Macau casino mogul Lawrence Ho said gambling revenue in the Philippines “could easily” double to $4 billion in a couple of years, setting the stage to challenge Singapore as Asia’s second-biggest gaming hub.
To ensure success, the Philippines will have to decide how to tax casino developers and operators, Melco Crown Entertainment Ltd. (MPEL:US) co-Chairman Ho said in an interview in Manila yesterday. In April, the nation’s tax bureau ordered all casino operators to pay income tax on their gaming earnings, removing an exemption provided for by the licenses given to four operators developing casinos in the capital.
The Philippines issued casino permits in 2008 to 2009 for Pagcor City, a gaming and entertainment strip along Manila Bay set up to compete with Macau and Singapore. The licensees, including Melco Crown’s venture with Philippine billionaire Henry Sy, must each invest at least $1 billion. The first casino, the $1.2 billion Solaire Manila, opened in March and Melco Crown’s City of Dreams Manila will start operating in mid-2014.
The Philippines overtaking Singapore’s gaming market is “within striking distance” and “doable,” said the 36-year-old son of Macau gambling tycoon Stanley Ho. “A lot of it would depend on how regulators and government support this industry.”
The Philippine gaming market is about $2 billion now, Ho said. Singapore’s casinos had gross gaming revenue of $5.9 billion last year, a sixth the size of Macau’s $38 billion, according to data compiled by Bloomberg.
Melco Crown Philippines Resorts Corp. (MCP) and its partners led gains among Philippine gaming stocks. Melco climbed 5.8 percent to 11.96 pesos at the close Manila, the highest in almost five months. Belle Corp. (BEL) rose 0.4 percent while Leisure & Resorts World Corp. (LR) jumped 2.4 percent.
“Ho’s outlook reinforces market perception that the Philippine gaming market has plenty of room for growth and if right incentive is given, the industry could surpass the market in Singapore,” said Astro del Castillo, managing director at First Grade Holdings Inc. in Manila.
The nation’s tax bureau wants to levy a 30 percent income tax on Philippine Amusement & Gaming Corp., the state regulator known as Pagcor, and its licensees on top of a 5 percent franchise tax. Pagcor and the licensees had previously been given an exemption from paying income tax.
“It’s obviously unsettling for shareholders when there’s a tax issue hanging,” Philip Tulk, a Hong Kong-based analyst at Standard Chartered Bank, said by phone yesterday. “A higher income tax could discourage investors to further invest or even complete the casino projects they previously planned to, thus it could reduce the country’s appeal to draw gamblers.”
Casino operators are in talks with the tax bureau and Pagcor over the termination of the exemption. Fitch Ratings said in June the removal of the exemption was “potentially a notable detriment” to the local gaming industry’s growth.
The Philippines’ relative tax advantage was supposed to help attract high-end gamblers in Asia as Manila casino owners can use the net margin differential to offer more attractive terms to junket operators, Fitch said in its June report.
Singapore has a 5 percent tax on gaming revenue from high-rollers, or those with a S$100,000 ($80,000) deposit account with the casino operator. For other players, the gaming tax rate is 15 percent, according to the city’s tax authority.
Marina Bay Sands, the Singapore gaming resort owned by Las Vegas Sands Corp. (LVS:US), had total casino revenue of $1.23 billion in the first half. Genting Singapore Plc (GENS), which operates Resorts World Sentosa and the Universal Studios theme park, had gaming revenue of S$1.07 billion ($855 million) in the six months.
Pagcor President Jorge Sarmiento said yesterday the tax issue hasn’t been resolved yet and that the regulator has asked the Supreme Court to help settle the matter. Standard Chartered’s Tulk said he expects the issue to be resolved in a way that is acceptable to the casino operators.
Melco Crown said yesterday it will boost its budget for the Manila casino by 10 percent to $680 million after the regulator allowed it to increase gaming tables to 365 from 242 and more than double slot machines and electronic table games to 3,360. Chief Financial Officer Geoffrey Stuart Davis said in June that the complex will have six hotel towers with 967 rooms.
Melco Crown will initially compete with the existing $1.2 billion Solaire Manila, the gaming complex owned by Philippine billionaire and port magnate Enrique Razon Jr. The last two licenses are held by Japanese billionaire Kazuo Okada and a venture of Genting Hong Kong Ltd. (GENHK) and Philippine billionaire Andrew Tan, which are scheduled to open between 2015 and 2017.
A “bidding war” has already started among junket operators who want to bring clients to Melco Crown’s City of Dreams Manila, Ho said. He also said the company will have to “do more” to bring high-rollers from Macau to Manila, such as providing private jets and helicopters for transportation.
Lawrence’s 91-year-old father Stanley Ho, nicknamed “the king of gambling” by the local press, held a casino monopoly in the former Portuguese colony of Macau for four decades until 2002, when licenses were issued to six operators, including Sands, Wynn Resorts Ltd. (WYNN:US) and MGM Resorts International. (MGM:US) The senior Ho built Asia’s largest gambling empire with SJM Holdings Ltd. (880) by catering to high rollers from China.
Ho said it’s important for the government in the Philippines to maintain stability and predictability when it comes to business policies, in addition to building the infrastructure to attract tourists.
“The reason we took the dive here is because we were comfortable with the government, that they are pro-business and that they really want to welcome businesses,” Ho said. “If the country is really serious about trying to bring in foreign capital, then there can’t be sudden rule changes.”
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