Moody’s concerned over default risk

Ratings firm Moody’s Investor Services shaved its rating on Imperial Pacific by one notch to “Caa1” and said it still had a negative outlook on the company, indicating it sees a significant chance of another downgrade in the medium term.

The firm last cut its rating on the firm in January.

“The downgrade of Imperial Pacific’s corporate family rating reflects our concern over the company’s trend of weak operating cash flow,” said Kaven Tsang, a Moody’s vice president and senior credit officer. “Moody’s is also concerned over Imperial Pacific’s liquidity position and the sustainability of its business model, given its high levels of accounts receivables.”

Moody’s notes that the current temporary casino is reliant on VIP gaming operations, which accounted for HK$7.1 billion or 95 percent of total revenue in 2016.

The company also demonstrates some concentration of credit risk, as seen by the fact that at end-2016 its five largest customers accounted for 33 percent of its accounts receivables (53 percent in 2015), the agency said.

“Imperial Pacific has asked its clients to arrange for collateral in the form of guaranteed deposits. However, the risk related to its accounts receivables remains high. This situation is reflected in the company writing off HK$300 million of accounts receivables and increasing its impairment provision by HK$847 million in 2016.”

For March Imperial Pacific reported a CNMI VIP roll at its temporary casino of $2.96 billion, recovering from February, but short of a peak of $5.58 billion recorded in January.

FBI makes arrests at casino site

The U.S. Federal Bureau of Investigation has arrested two people in connection with the death of a construction worker at Imperial Pacific International Saipan casino site, according to Bloomberg. “The FBI conducted a search and made an arrest in response to the recent death of an individual working at the construction site of the Imperial Pacific Resort,” the news agency cited the bureau’s Michele Ernst as saying. “The investigation is related to allegations of a federal violation of the workplace visa system, including reports the company was systematically harboring individuals who are out of status and in violation of federal statutes.” The company has denied it was the subject of a raid. 

Tonga PM nixes casino idea

Tonga Prime Minister Akilisi Pohiva has shot down the idea of a casino resort being developed in the country, local media reports. Pohiva’s comments come after Tavake Tamafua Ltd said it had been given tentative approval from the government to build a casino in the country. The company said it received a letter from government minister Tevita Lavemaau saying that government supports the initiative to establish a casino and will grant an exclusive right under conditions to build in Tonga within the next two years.

However, the Saipan government has only approved one junket agent, meaning the operator is taking on the risk. Moody’s said the release of the company’s recent annual report had highlighted the concerns about high receivables and added it sees little prospect for improvement in the near term.

The Hong Kong-listed company beat rival Marianas Stars Entertainment for a license to operate a casino on Saipan in 2015. Shortly after winning the permit, it pledged to double its investment in CNMI to about $7 billion, raising concerns about the sustainability of the project.

The company has been operating a temporary casino at T Galleria, a luxury shopping mall right across from the location where the 373-room hotel is being built. The facility was to help fund the construction of the new resort and to provide a live training facility. However, its license was due to expire at the end of April.

Since the casino opened in the T-Galleria with just a handful of tables in late 2015, the property has far exceeded expectations, generating an average roll of more than $2 billion a month. February’s figure was $1.66 billion.

The new resort was supposed to open on January 28, just in time for the Chinese Lunar New Year of the Fire Rooster. However, it was pushed back due to unforeseen events since the CNMI government, represented by the Commonwealth Lottery Commission, and IPI signed the casino lease agreement (CLA) in August 2014.

The initial gaming facility will have 193 gaming tables and 365 slot machines, which is a significant increase compared to the 48 tables and 141 slot machines at their temporary facility.

Imperial Pacific Chairman Mark Brown has written to CNMI Governor Ralph Torres to request amendments to the CLA and for an extension of deadlines for the implementation schedule. According to the CLA, Imperial Pacific would be charged $100,000 per calendar day for any delay.

The first reason given for the delay was the devastation caused by Typhoon Soudelor in 2015. Brown said no one was spared when the storm barreled through Saipan causing major damage to homes, buildings, and other infrastructure, including power, telecommunications, and water. Soudelor, one of the strongest tropical cyclones to hit the CNMI since Typhoon Kim in 1986, also had an impact on the company’s construction site in downtown Garapan.