Primorye revs up development efforts

The Russian gambling zone of Primorye, which has not been developing as fast as anticipated, is stepping up its efforts to attract more investors as part of an ambitious plan to almost treble visitor numbers by 2025.

The Primorsky Krai Development Corp. (PKDC) is seeking expressions of interest for three plots of vacant land and says it will hold an auction once it receives pre-orders from at least three companies. It has been in talks with groups from Russia and Europe and potential Chinese investors.

The company says the situation has been complicated as most of the investors so far have been interested in a plot of land leased to the Royal Time Group.

The development company terminated its contract with Royal Time in June after repeated construction delays of its Phoenix IR. Only 2 percent of the first Phase A of the project had been completed by a December 16 deadline.

Before President Vladimir Putin shut down all casinos in Russia in 2009, the country generated about $3.6 billion in annual gross gambling revenue.

Gambling is now only permitted in five relatively remote zones, which were deemed in need of foreign investment.

Most are struggling to get off the ground, though Primorye, thanks to its proximity to northern Asia, has attracted more interest.

Online gambling complaints spike

Russia’s telecom watchdog says it has received more than 38,700 complaints related to illegal online gambling in the first half of this year, a more than 235 percent increase from the same period a year earlier. Roskomnadzor has been clamping down on illegal gambling and has a large and expanding database of blacklisted sites. It has also reached an accord with the country’s search engines to block residents’ access to such sites.

VIPs boost Summit Ascent’s revenue

Summit Ascent Holdings saw revenues increase 20 percent in the first half of 2017, attributed mainly to an influx of VIP revenue in the period. Total revenues reached HK$204.6 million ($26.1 million). The company recorded a net loss of HK$5.3 million in 17H1, attributed mainly to a number of non-cash items including depreciation and amortization. The main contributor to revenue came from its rolling chip business, which saw a 140 percent increase in 17H1 to HK$8.4 billion.

According to a study by Ernst & Young, commissioned by the PKDC, the zone has the potential to generate $2.2 billion in GGR by 2025. Global Market Advisors has set a range between $2 billion and $7 billion.

“Our plans (are) to make the territory RUSSIA of 619 acres not a gambling zone, but an integrated entertainment resort, a City of entertainment,” PKDC director general Andrey Folomeev said in an email. “It will become a place for both family members and lovers to take a drop of whiskey while playing poker. For old ones and young ones - for everybody.”

The zone is just over two hours by plane from Beijing, Tokyo and Seoul, giving it access to a population of about 400 million in the northern Asia region. According to Daiwa Securities, Northern China accounted for 21 percent of China’s high net worth individual population in 2014 but only 6 percent of Chinese visited Macau in 2014.

“We believe there remains a large amount of untapped gaming demand in cities within a three hour flight time of the Primorye Integrated Resort,”Daiwa said.

PKDC and other investors have committed to invest up to $2.17 billion in improving supporting infrastructure, such as transport links and other engineering projects.

The development company points out that Primorye offers attractive incentives for investors, such as one of the world’s lowest taxation regimes. There are also proposals to allow the resorts to operate Duty Free Stores, while air links are rapidly improving, especially to China.

By 2022, when the eight facilities in the first phase are supposed to be fully operational, the company projects that about 20,000 people will be employed in the resorts, with total employment creation of 30,000 once related industries are factored in.

It sees an increase in the annual volume of tax deductions to the federal budget by 950 million rubles, and of 7.8 billion roubles to the regional budget of the Primorsky Territory.

The three plots of land currently on the block all set out minimum investment limits and table and slot allowances.

So far, Hong Kong-listed Summit Ascent has the only operational IR in the zone, having opened its Tigre de Cristal in November 2015. However, the ramp up was slow, with fewer tourists than expected and a limited appetite from locals for the gaming offerings. The company also said illegal gambling had hurt its operations, forcing it to scale back the number of slots and tables it was offering. To address the problem, the Primorye development company said a hotline has been set up to report cases of illegal gambling.

Summit Ascent says it now sees improving business conditions, helped by better transport and the new visa scheme. It is now reviewing designs for the $500 million second phase, which it will carry out with South Korea’s Kangwon Land. This phase is expected to open in the second half of 2019.

Hong Kong listed NagaCorp is constructing the biggest resort in the zone. In April of this year builders started the second stage of excavation and are planning to approach the completion of the facility in the beginning of 2019.

Russian investor Diamond Fortune Prim is also scheduled to open its Selena facility by 2019. Diamond Fortune is the largest investor in Primorye, with planned investments of $914 million in four separate complexes, one of which will include a ski slope. Selena is scheduled to open with 500 slot machines and 100 tables.