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Consortium Led by Macau Mogul Lawrence Ho to Raise Stake in Russian Casino
Yvonne Lee and Kate O’Keeffe broke the news that the consortium is planning to increase its stake in a casino project on the outskirts of Vladivostok to 85% in a move aimed at broadening Mr. Ho’s empire beyond Macau.
The article as it appeared on Dow Jones:
12:00 HKT Consortium Led by Macau Mogul Lawrence Ho to Raise Stake in Russian Casino
By Yvonne Lee and Kate O’Keeffe
HONG KONG–A consortium backed by Lawrence Ho agreed to raise its stake in a casino project on the outskirts of Vladivostok to 85%, as the gambling mogul expands his empire beyond Macau and into far eastern Russia, where operators hope to attract players from northern China.
Mr. Ho’s local partner, Oleg Drozdov, who holds a 30% stake in the project, will sell half his stake in the casino project to Summit Ascent Holdings Ltd. and Taiwan-listed electronic gambling machine maker Firich Enterprises Co. for US$21.7 million.
Upon completion of the deal, Summit Ascent, in which Mr. Ho owns a 33.8% stake, will raise its interest in the casino project to 60% from 46%, while Firich Enterprises will boost its stake in the project to 20% from 19%. Melco International Development Ltd.–another one of Mr. Ho’s companies–and Mr. Drozdov will own the remaining 5% and 15%, respectively.
Mr. Drozdov has been detained by Russian authorities in an investigation into alleged “business malpractices” tied to the construction of a solid-waste treatment facility, according to a November filing by one of Mr. Ho’s companies to the Hong Kong Stock Exchange. Sergey I. Bondar, a lawyer for Mr. Drozdov, said his client is still being detained and under investigation but that so far “no prosecution by the judicial authorities has been brought against Mr. Drozdov.”
The November filing by Mr. Ho’s company said the investigation wasn’t linked to the casino plans. But it noted the company’s right to buy out any shareholder in the gambling project “deemed by any relevant gaming regulatory authority to be an unsuitable associate.”
The first phase of the planned casino-resort in Primorye–a vast eastern region bordering China–is scheduled to open by the end of this year. The project aims to attract Chinese high rollers, who have transformed Macau–the only place in China where casino gambling is legal–into the world’s largest gambling market. The territory generated $45 billion in gambling revenue in 2013–or seven times more than the Las Vegas Strip.
For people in northern China, Vladivostok is closer than Macau. A flight from Beijing to the Russian city takes 2 1/2 hours, compared with three hours and 45 minutes to Macau. Harbin, the largest city in China’s Heilongjiang province, is an hour and 20 minutes from Vladivostok by plane.
It is common for Russians to drive to China to shop, and many Chinese go to Vladivostok for work and vacation.
The project’s first phase is planned to have 120 hotel rooms, 65 gambling tables and 800 slot machines and would be one of the first legal casinos to open in Russia after the country in 2009 banned casino gambling beyond four special zones, which include Primorye.
Construction costs for the entire resort are expected to total US$650 million, according to a person familiar with the project.
Steve Gallaway and Andrew Klebanow, partners at U.S.-based Gaming Market Advisors–which prepared a casino industry report for the Primorye government in 2012–said they believe the region could still rake in $1 billion in gambling revenue early on. But they said the political fallout with the U.S. and Europe from Russia’s March annexation of Crimea, a Ukrainian territory, could set back development of the Russian gambling industry by several years because the tensions could damp enthusiasm from both investors and tourists.
Dean Macomber, president of U.S.-based Macomber International Inc., which has done consulting work on the Russian casino industry, said the long-term success of Vladivostok as a gambling destination “depends upon the relationship between Russia and China and, to a much lesser extent, other Asian countries like South Korea and Japan.”
Mr. Ho, Cambodia casino operator NagaCorp Ltd. and a local Russian company are progressing with their casino plans regardless of tensions with Ukraine, said Alexander Chkheidze, Deputy General Director of OJSC Nash Dom Primorye, the state-owned firm that will be the gambling companies’ landlord.
But Mr. Chkheidze said he anticipates U.S.-based Global Gaming Asset Management, which is involved in a casino project in the Bahamas and is run by a group of former senior Las Vegas Sands Corp. executives, will cancel its plans to build in Russia. He said negotiations with the firm had already been stalled for six months and that the political issues surrounding Crimea wouldn’t help.
Bill Weidner, GGAM’s chief executive, said: “GGAM continues to see significant potential for the gaming market in Vladivostok and in the project we are pursuing there. We’ve taken a very deliberate pause to evaluate the implications of the current geopolitical situation for the structuring of this project, but our interest in this market remains high.”
Separately, analysts and Mr. Chkheidze dismissed the idea that Crimea itself could become an additional gambling hub in Russia. On Monday Russian President Vladimir Putin submitted a draft bill to parliament that would designate the recently annexed territory as a legal gambling zone. “It has no value as a gambling destination,” Gaming Market Advisors’ Mr. Gallaway said of Crimea. “It’s not where Russians go on vacation, and they don’t have the infrastructure for it.”
Mr. Ho’s increased investment in Russia is part of a search for business opportunities beyond Macau. Mr. Ho’s father, Stanley Ho, held a monopoly on gambling in Macau for decades until the government opened the territory to international operators a dozen years ago.
The younger Mr. Ho and James Packer, the son of late Australian gambling magnate Kerry Packer, are co-chairmen of Melco Crown Entertainment Ltd., which is one of six casino license holders in Macau. Messrs. Ho and Packer are also building a casino-resort slated to open later this year in the Philippines and are lobbying for a license in Japan should the country legalize casino gambling. Meanwhile rival casino operators are moving forward with plans to build in South Korea.
Nonna Fomenko in Moscow contributed to this article.
Write to Yvonne Lee at firstname.lastname@example.org