Cambodian casinos look to win from China anti-graft crackdown

Michael Peel in Bangkok

©AFP

Chips are down: The Asian gambling market has been in flux since the China crackdown started last year on Macau

Cambodia has long drawn tourists to sights ranging from the Khmer Rouge killing fields to the magnificent temples of Angkor. Now the country is looking to a new market: Chinese gamblers who are deserting Macau, the region’s traditional casino hub.

‘If you are Chinese, you go to Macau and what’s there? Gaming, shopping and entertainment — that’s all,” says Philip Lee, chief financial officer of NagaCorp, Cambodia’s dominant casino operator. “If you come to Cambodia, it’s not just hardcore gambling — it’s a more holistic experience.”The sales pitch is part of a grab several Asian countries are making for Chinese high rollers seeking a more discreet alternative to Macau, after Beijing launched a crackdown on money laundering and ostentatious wealth there.

But Naga’s story also shows the risks facing gambling businesses in a region where cultural sensitivities still loom large — and where the ever-keener rivalry for itinerant wealthy clients may soon make the business a lot less lucrative.

“It’s going to become more and more competitive and less and less profitable to get these players,” says Michael Ting, Asia director of gaming research at CIMB, the Malaysian bank. “We think margins will decline.”

The Asian gambling market has been in flux since the China crackdown started last year on Macau, a gaming honeypot whose annual revenues of $44bn outstrip Las Vegas more than sixfold.

Gaming stocks in the territory, the only part of China where casinos are allowed, tumbled in February when lunar new year takings fell 49 per cent year-on-year to 19.5bn patacas ($2.4bn) last month, according to data from Macau’s Gaming Inspection and Coordination Bureau.

That came on top of a 2.6 per cent drop in Macau’s gaming revenues last year, the first fall since records began in 2002.

Rival locations are now queueing up to take advantage in a region where nationals are still banned from gaming in many countries — including Cambodia, on Buddhist religious grounds.

It emerged last month that Chow Tai Fook Enterprises of Hong Kong plans to invest $2.6bn in a casino project in Incheon in South Korea, as well as possibly launching further ventures in Vietnam and Australia.

Caesars Entertainment Corp, operator of Las Vegas’ Caesars Palace, is eyeing a $1bn resort in the Philippines to draw gamblers from across Asia.

Now Naga, which started off as a riverboat casino on the Mekong in Phnom Penh in the mid-1990s, is pushing to capitalise on what it describes as the “huge opportunities” created by Macau’s woes.

The company plans to increase its existing 1,700 hotel rooms built or under construction to 4,000, and is also using two aircraft to fly in Chinese tourists — one of many such “junkets” organised by ambitious gaming operators to tempt punters.

But the company ran into a hitch late last year when a project to expand its flagship NagaWorld complex into the grounds of a neighbouring Buddhist library triggered protests by monks. Naga describes the incident as “rather unfortunate,” and says it has shelved the plan, but some of the monks involved remain concerned.

“We do not believe this thing can stop forever,” says Venerable Thong Narith, a demonstration leader. “If things go negative and they keep going with their plan, we will protest again.”

Naga has also faced scepticism about its perceived closeness over two decades to the long-ruling Cambodian People’s party government, which awarded it a 70-year casino licence and a 41-year monopoly on gaming within a 200km radius of Phnom Penh.

A project to expand its flagship NagaWorld complex into the grounds of a neighbouring Buddhist library triggered protests by monks

Critics says the cosiness is symbolised by NagaWorld’s prime position next to the country’s parliament — and by what the company describes as an emergency exit gate that links its premises to the foreign ministry.

In 2001, Chen Kip Keong, Naga’s chief executive and controlling shareholder, became an economic adviser to Hun Sen, Cambodia’s prime minister of 30 years.

Naga’s Mr Lee retorts that the company secured its Cambodian permits in 1995 in an “absolutely above board” process overseen by the UN, which had mounted a peacekeeping operation in the country in 1992-93 to prevent a return to the devastating conflict of the Khmer Rouge years.

“Over the years we have grown and are very much part of nation building,” Mr Lee says, citing the company’s contribution to tourism and employment in one of the region’s poorest states. “We are part of the economic fabric of the country.”

But even as Naga doubles down in its home market, a hint of the wider competition to come lies in the faraway battle it is waging with a rival consortium to tap the Chinese market with new developments in the Russian city of Vladivostok. Other analysts highlight perhaps an even greater threat just across Cambodia’s frontier, as still more countries seek to tap the Asian gaming bonanza.

“Vietnam could allow Vietnamese to gamble,” say analysts at Morgan Stanley, referring to proposals floated in Hanoi to allow tens of millions of Vietnamese people to bet legally at home. “This could have a negative structural impact on NagaCorp’s mass market.”