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Japanese Banks 'Won't Lend' To IR Operators Over Licence Brevity

Major Japanese banks are warning they will refuse loans to would-be integrated resort (IR) operators in the country if uncertainty surrounding licence renewals persists, according to a top Las Vegas Sands executive.

Las Vegas Sands managing director of global development George Tanasijevich told a Goldman Sachs investors and operators forum in Tokyo that “major Japanese lenders” said IR legislation's “ten year, five year” licence renewal stipulation will obstruct IR financing.

The initial ten-year licence period will include the duration of construction and fitting out of IR properties, and Tanasijevich on Wednesday reinforced operator concerns that the truncated initial operating period and five-year renewals, together with a tough tax regime, “present some challenges”. 

“We’re a bit concerned about that because the feedback that we’ve got from major Japanese lenders is that they won’t lend based on that kind of framework because there’s a certain lack of certainty, of continuity of licensing,” he said, without naming the financial institutions.

“The government’s aware of that type of a concern and I think they’re considering how that might be addressed.

“It may be addressed at the national level, it may be addressed at the local level, but everybody knows there’s a problem that needs to be overcome.”

In response to a GamblingCompliance question on whether funding uncertainty would benefit wealthier gambling companies vying for an IR licence, Tanasijevich said “it’s good business” to partner with banks on major projects.

“I think that we’re as interested in financing this through banks as anyone else,” he said.

“I think that ultimately, though, this issue as I have defined it is going to be adequately addressed because it’s so fundamental to the success of developing an integrated resort, particularly in the major markets, where most people have indicated that the cost is going to be more than $10bn, and so there needs to be support from local banks and international banks.”

Tanasijevich said that resolution of the problem will “perhaps [be] through contractual arrangements at the local government level or otherwise”.

MGM Resorts Japan CEO Ed Bowers told the forum that he agreed the problem “will work itself out” because of the importance of the project to the Japanese government.

Meanwhile, the Marina Bay Sands president and CEO added that a tougher gaming tax and uncertainty over how long the tax rate will apply are also points of concern.

“Obviously the 30 percent gaming tax is very high, particularly when you consider the corporate tax rate of around 30 percent is also quite high,” Tanasijevich said.

“We think there’s also an issue in terms of the certainty of the gaming tax rate over a period of time”, unlike Singapore, he said, which locked in gaming tax rates from the outset.

But Tanasijevich expressed confidence that government and industry stakeholders will overcome these obstacles.

“It requires some gentle assessment on how to address those issues, so we’ll continue to have conversations with government and private sector parties as well, [and] we’ll get there.”

In a question to panelist Toru Mihara, a professor and director of Osaka University of Commerce’s Institute of Amusement Industry Studies, Tanasijevich pointed to communication gaps between the government, the nascent gaming industry and the Japanese public and suggested the government must make up for lost time.

“We completely agree with your assessment that there needs to be stronger, more complete communication with the Japanese public on what an integrated resort is [and other issues],” Tanasijevich told Mihara.

“Do you think that at the national government level there is recognition of this and that they have … designated who will be a spokesperson on behalf of the government on these types of issues?

“And do they have a plan in terms of what the messaging will be? it seems quite blatant that this should have been before the legislation was passed and not after.”

Mihara said in response: “The Japanese government is not very cooperative … no one’s got a PR strategy. Unfortunately not.

“But it has been on the agenda for the government to try to do several PR approaches, and the budget has been allocated.”

Comments by legislators, industry and gaming analysts in recent weeks betray widening concern over regulatory and market vulnerabilities spawned by sections of the IR implementation bill, including local government capacity to absorb licensing risk, and the ramifications of “gateway” obligations on IR operators to expand tourist visitation around the country.

The regulatory environment should become clearer in 2019 with the formation of a casino commission mid-year, but will also be further complicated by local elections in April and elections for the House of Councillors in July.