Melco looks on the bright side after Yokohama casino plan is canned

After the election of an anti-integrated resort mayor in Yokohama, the prefecture has bowed out of the race for one of Japan’s three new licences but Melco remains interested in future opportunities.

South China Morning Post reports that Lawrence Ho’s Melco Resorts and Entertainment “remains committed to exploring opportunities to develop the world’s best integrated resort in Japan.”

Takeharu Yamanaka, who was elected in August on an anti-casino platform, withdrew the city’s bid to host a casino development in early September, citing local concerns about gambling addiction and the impact on public safety.

“While we are disappointed, we are grateful for the friendships that we have formed throughout the process and express our sincere gratitude to the people and government of Yokohama,” Lawrence Ho said.

“We firmly believe in the country’s long-term potential and remain committed to exploring opportunities to develop the world’s best integrated resort in Japan.”

The so-called integrated resorts combine casinos with hotels and other facilities.

New Yokohama mayor changes casino fortunes

Yokohama and other localities in Japan have been moving forward with plans to formalise casino resort proposals, which the central government would then need to accept between October 2021 and April 2022.

Japan legalised casino gambling in 2016 to great excitement among industry players such as MGM Resorts International, which with its local partner, Orix, placed an initial investment of US$9.1 billion for an integrated resort project in Osaka in July 2021.

Macau-based Melco has been working in Japan for over a decade, but competition from other companies and public concerns about the development of integrated resorts has not made things easy.

However, the newly-elected Yokohama government has stepped out of the game.

Ho said he was eager to break into Japan’s budding gaming market, but the company had now closed its Yokohama office.

In a report released in mid-September, investment bank Morgan Stanley said the cancellation of Melco’s bid was “no surprise” after Yamanaka, who is anti-integrated resorts, won the mayoral election.

Genting Singapore and Melco were the two remaining contenders for the integrated resorts project.

Melco has a net debt of US$4.8 billion and the cancellation of the plans “could be a positive in terms of capex saving”, Morgan Stanley’s report said.

“I think with everything that’s happening politically in Japan at this stage, I don’t really think Tokyo is going to suddenly interject itself into the process because it’s had years to do and it chose not to,” Vitaly Umansky, senior research analyst at Global Gaming said.

“I think the political backers in Yokohama of the anti-casino agenda have been very vocal, and that the pro-casino forces have been, I would say, less vocal.

“And as a result, the public opinion has been swayed against casinos in Yokohama.”

Upside for Melco, downside for Genting after Yokohama pulls out of casino plan

Morgan Stanley said that while the decision to pull out of Yokohama will be positive for Melco in the long run, it will be negative for one of the city’s casino partner suitors, Genting Singapore.

A note from analysts at the institution said that the Yokohama project would have brought Genting Singapore a net present value of US$0.10 per share.

Net present value is the present value of cash flows at the required rate of return of your project compared to your initial investment.

Morgan Staley stated that, even though Genting Singapore, the operator of Resorts World Sentosa in Singapore, is sitting on cash reserves of more than US$3 billion, the company was “less likely” to declare a higher dividend, due to other spending commitments.

The casino operator has pledged to the Singapore government to invest $4.5 billion on a second phase of Resorts World Sentosa and had already spent around $1 billion on land there.

Genting Singapore linked with Japan-based entertainment and gaming conglomerate Sega Sammy Holdings for the Yokohama project, with Japan-based Kajima Corp chosen as the construction partner.