IPI debt levels rise, construction woes persist

Imperial Pacific International is facing mounting levels of bad debt due to its practice of extending direct credit to VIPs, while it continues to struggle to make headway on completing its hotel facilities.

Problems for Saipan’s only operator continue to mount, with the company recently denying persistent reports it has been the subject of a Federal Bureau of Investigation raid.

In its most recent results, the company posted stellar topline growth, though its outstanding receivables and debt provisions also gained in tandem, with the figures showing a high degree of credit risk concentration on just a handful of clients.

The company reported an almost three-fold rise in gross revenue for the year to HK13.2 billion ($1.68 billion), although net profit fell by almost a third to HK$637.5 million. VIP table games rolling of HK$385.9 billion was up 53.6 percent year-on-year. Mass, slots and ETG revenue edged slightly higher.

The results were hit by rising bad debts, as well as higher operating expenses, with most of the company’s business coming from direct marketing, rather than through junket operators.

“The growth in VIP gaming revenue is attributable to the group’s effective marketing campaigns and increasing tourist visitation to CNMI,” the company says. “Our VIP customers primarily consist of credit players. Geographically, most of our direct VIP customers are come from China, Hong Kong, Macau and Korea,” it adds.

IPI says its “seeks to maintain strict control” over outstanding receivables. However, at the end of 2017, the company had VIP gambling debts of HK$8.5 billion, up from HK$5.3 billion in 2016. Impairment losses came in at HK$4.75 billion, a nearly nine-fold increase on the HK$547 million the company booked in 2016.

Furthermore, the company disclosed that 8 percent of its credit risk was concentrated on one sole high roller, while 23 percent of receivables were attributable to the top five customers.

The provision for impairment of trade receivables due from the group’s largest and the ten largest debtors amounted to HK$1.09 billion and HK$1.86 billion, compared with nil and $83 million in 2016.

The credit term for customers is generally 30 days for gaming operations, with each given a maximum credit limit. For new customers, payment in advance, or certain forms of guarantee are normally required.

The company has had a relationship with one junket operator since August 2016, though at present it only accounts for a small portion of revenue. IPI says that as gaming facilities are expanded and the resort is able to offer more VIP amenities, it expects to attract more gaming promoters, once they receive a license to operate on Saipan.

“Due to CNMI’s lower tax regime, we believe we will be able to offer very competitive commission rates to our gaming promoters,” it said.

However, some in the industry are less optimistic about the appeal to junket operators.

“The one official junket is a really, really small Korean guy,” said Ben Lee, Managing Partner of gaming consultancy firm iGamix Management and Consulting. “They were trying to get the big Macau junkets interested but none of them were.”

Before the opening of the casino in Garapan in July last year, Imperial Pacific was operating out of a temporary facility with just 48 gaming tables and 141 slot machines. Since the transfer to the new property that has risen to 77 tables and 242 slot machines at present with maximum capacity of up to 193 tables and 365 slot machines upon completion.

From the outset, the high level of VIP rolling volume being generated from such a small number of tables raised eyebrows in the industry, as did the level of pledged investment.

The company beat out Marianas Stars Entertainment for the right to operate the casino in 2014 and shortly thereafter promised to invest $7.1 billion on the South Pacific island, which has abundant natural beauty, but limited tourism infrastructure.

A lack of available hotel space has been identified as a key factor holding back tourism growth.

According to the Hotel Association of the Northern Mariana Islands, the average hotel rate reached a new high of US$145.93 per night in 2017, with an average hotel occupancy rate of 90.89 percent.

Visitor arrivals to CNMI recorded a new high in last year, rising by 24.3 percent to 659,741. Korea was the number one source market with a 50.4 percent market share and strong growth of 65.81 percent for the year. In second place was Mainland China with growth at just over 11 percent.

Imperial Pacific currently has 3 villas and 5 yachts in place for VIP clients as well as hotel rooms secured from local high quality hotels. However, the rollout of its own hotel has been plagued by delays, with construction slowing significantly after its prime contractor, MCC International, left the island after hiring illegal Chinese workers for the project.  

According to its casino license accord, the company was scheduled to have completed

a minimum of a 329-room four or five star luxury hotel, 14,140 square meters of gaming area and other associated support components by the end of August this year but the hotel is still at a skeletal stage.

As a result of the delays, the company plans to request an extension to that deadline.

“I don’t think it will ever be finished, it’s a big lemon that is waiting for the FBI to come in and everything will be frozen,” Lee said.