Vietnam is expected to be a key beneficiary of manufacturing migration out of China, which will bring with it expatriates looking for entertainment. In this week’s Face-to-Face interview, Tim Shepherd, director of Fortuna Investments, outlines the potential drivers for the country’s VIP clubs and why they are poised for a bright future.
He also talks about the stalled auction of Imperial Pacific International’s gaming assets on Saipan after a white knight rode to the rescue…at least for now.
Face-to-Face with Tim Shepherd – Transcript
Host
Hi, Tim, thanks for joining us today. Very good to have you with us. You’ve just got back from Vietnam, where you managed to get for the first time since the pandemic. Can you take us through what the protocol is for arriving in Vietnam?
Tim
So when I arrived, I needed nine days in full quarantine, there were people in hazmat suits and so on. But as of today, it’s now three days of homestay, or hotel stay, with testing on departure. So it’s much more liberal now and you could say it’s very progressive. One of the reasons for this is a 92 percent uptake on vaccination, which is the sixth highest in the world. The government really got to work on that and is following that up with an open door policy. It should see it being an attractive place.
Host
Are you seeing much of a pickup in international air traffic?
Tim
So I think that will come a little bit later, I think everybody’s a bit cautious about travelling, and that’s not quite picked up. I’m sure the demand is there. But at the moment, we’re not seeing the flights coming in. But as we get through 2022, I think we’ll start to see that.
Host
In terms of the casino market, obviously, locals aren’t allowed to gamble apart from in the Corona Resort on Phu Quoc, how are the casinos doing there?
Tim
The bigger projects, the Hoianas and the Ho Trams and you would say it’s very limited in terms of play with just a few tables open. You know, they’re really drawing on local expatriates or certain VIPs that they know, that are based in the country. But not a great deal going on for the big IRS. For the smaller casinos which tend to be in the north, it’s pretty much a similar story. Anything that’s on the Chinese border, like Aristo, which is again catering to foreigners who are based in Mainland China it’s slow. Nothing, or nobody is coming over that border from China and probably won’t be for some time. In the major cities, the VIP clubs that offer electronic Gaming, some of those are doing very well. But nowhere near pre pandemic levels.
Host.
Are they all open and operating normally now?
Tim
With one or two exceptions, the government allowed them to open. Obviously, there was a period when all were closed. But the government is easing now and you can walk around Vietnam as if it was before the pandemic, of course with a mask on. The government is anxious to get back to business as usual. You know, it’s got the same opinion of Omicron as have most other people, that it’s here to stay, or isn’t as devastating as other variants. So we should see pickup across the sector.
Host
So obviously, the casinos in Vietnam get a lot more attention than the pubs and clubs, which are very much overlooked. Can you tell us a bit more about what they consist of and who they’re catering for? And how do you see their prospects?
Tim
You know, as long as you’re close to a big population, where it’s close to industry and manufacturing they are doing well. What you’re looking at is, I wouldn’t say particularly anti China sentiment in terms of manufacturing, but there is a shift between places that foreign investors can get to reasonably and places where they can find cheaper workforces. Vietnam is beating China at the moment. So we’re seeing more people visit and that means more Korean investment, more Malaysian investment, potentially more American investment and that means foreigners following in behind always looking for something to do. Therefore, you have that latent demand
Host
Give us a bit of colour. I mean, what are these VIP slot rooms like? Roughly how many of them would you see maybe in the larger cities?
Host
About 10 to 15, they have to be in five-star hotels with one or two exceptions, but typically the law lays down that they must be in a five-star hotel. The room can consist of anything from 80 or 90, electronic games up to 150. The interesting part of that is that a roulette wheel is counted as one machine, so you can have an unlimited number of terminals around a roulette wheel, which will only count as one. So that 150 could translate to 200. And the number of terminals in the VIP club would be a factor of how many rooms in the five star hotel, typically one in five. So for every one room you get five.
Host
Would you be allowed to have any live dealer?
Tim
Not officially, although some clubs do have a sort of stadium style dealer who deals cards, and players will gamble on a terminal, looking at those real cards. So it’s a sort of hybrid model. And not everybody does that. Some manufacturers and some club owners interpret the law differently than others.
Host
Obviously, looking beyond COVID, we will have a big question mark and that’s once borders do reopen, where will the Chinese be allowed to gamble? How do you see these clubs and some of these other properties in Vietnam as being placed?
Tim
Yeah, so it’s a good question. You know, is Vietnam really a hub for Chinese to fly into? It’s a proximate country, it’s obviously a tourist destination in and of itself, you know, it has many beautiful parts to it, the beaches, the mountains in the north, Halong Bay and they would be gearing up for the general public of China to visit as it’s a next door neighbour. Vietnamese, and Mandarin are quite similar, so it is a country that Chinese feel comfortable visiting and a 1000 years ago it was actually considered part of China. So there’s a lot of history there that makes it a good destination. Whether you’ll have flights coming in specifically to gamble that’s another thing, but the tourist aspect of it, I think, remains quite a strong fundamental business.
Host
I was wondering, if China is really going to be very serious about gambling tourism, whether some of these smaller clubs would benefit, will they fly more under the radar?
Tim
I would say there’s no live gambling, there’s no tables and you can’t touch the cards. So there’s that disincentive really to people flying in for that reason.
Host
And so tell us a bit about what Fortuna has been doing.
Tim
We invested in Southeast Asia, two or three years ago, we did invest in a hotel club in the north of Vietnam, which did very well until the pandemic. So that’s been closed for exactly two years. But we don’t have the costs that others might have. In Hanoi we have a VIP and we’re looking at investing in a similar sector in Ho Chi Minh in the VIP sector, which we really like. We work with Scientific Games and its machines do very well in Vietnam. So we’ve got a good partnership with a very strong competitor.
Host
What machines do you have in there?
Tim
Within the SG portfolio we have a mixture of slot banks and and then electronic table games, roulette, those do particularly well in clubs there.
Host
Are there any major differences between north and south?
Tim
In Ho Chi Minh, there’s probably a stronger expatriate population and a returning Vietnamese population, which means those clubs will do significantly better, I think across the board than in the north. Although we are seeing more investment nowadays coming into the north and dragging with it those increased numbers of Koreans and Malaysians, Taiwanese. For instance, Samsung is investing about $4 billion just north of Hanoi and bringing with them a lot of foreigners. So it’s an attractive market.
Host
You were also appointed as the limited receiver for the Imperial Pacific asset auction, which hasn’t happened. Can you give us an update on what’s happening there?
Tim
So we were appointed to sell that equipment, it was in good shape and well looked after by the company. There seems to be a white knight that is preventing us from selling the equipment by offering security on the assets, to creditors, which is okay. Legally that ‘s been correct. The white knight keeps coming up with the cash to prevent the sale, even though the assets are getting older and older and older. So one wonders if they keep doing it. What would be the point because we can probably get a good price for them now. The initial auction that we had planned for the end of December, would have raised good money, and we had more to come. So IPI still owes this very, very large amount of money to the Commonwealth Commission, which is the regulator on Saipain. It owes aboutder the $30-40 million, so is the White Knight going to continue to pay these huge amounts when it’s not actually an equity shareholder as far as we know, in the listed company, here in Hong Kong. So it’s opaque at the moment, but the auction is what they call staid, which means it’s not proceeding, unfortunately.
Host
IPI is a Hong Kong-listed company. At a certain point, do they not have to give some information to shareholders? I mean, who is this white knight and where do they come from?
Tim
People seem to know who it is. I’ve just been told by lawyers that they think that it’s a very wealthy Chinese businessman who’s interested in the project as a whole, or has other reasons to want to be involved. We find it at odds with the facts, but the Stock Exchange doesn’t seem to be too concerned, obviously. So, this may continue for quite some time. There is no sign of tourism coming back to Saipan and certainly not from China. So how will this proceed over the next few months with many, many creditors needing to be paid 10s of millions of US dollars.
Host
Are the assets still in decent condition?
Tim
They were well looked after by the management like they’re good, great machines, many not used. But you know, seven years old Aristocrats are no longer the newest cabinet. They’re older games and they’ve been sitting in a casino for 18 months without electricity in what is a humid part of the world.
