Philippines makes play as a gambling Mecca

21-Apr-2012 Intellasia | WSJ | 7:05 AM Print This Post

The next casino battleground is taking shape in this unlikely locale, on a dusty strip overlooking a harbor with fiery sunsets. And in an industry dominated by international moguls, a local businessperson who made his billions as a ports operator is betting he can win.

Enrique “Ricky” Razon Jr. says the Philippines will become the world’s next gambling Mecca – a destination to rival Macau and the Las Vegas Strip.

The stakes are enormous. PricewaterhouseCoopers says a “fundamental shift” in the global casino industry’s balance of power means Asia will overtake the US next year as the world’s biggest regional market in terms of revenue. The Chinese territory of Macau already rakes in $33.5 billion in annual gambling revenue – more than five times that of the Las Vegas Strip.

But Razon and his rivals will have to overcome the Philippines’ history of poverty, natural disasters, kidnapping and terrorism. In 2010, a former Manila police officer hijacked a bus and killed eight Hong Kong tourists.

Razon says he is spending $1.2 billion – $200 million of it his own money – to build his casino resort. His Bloomberry Resorts Corp. plans to open the high-end Solaire Manila at the beginning of next year. The resort’s first phase is expected to have 300 gambling tables, fine dining, meeting facilities and VIP villas overlooking a palm tree-lined promenade on Manila Bay.

“Our main strategy is to really drive the foreign players,” says Razon, whose father ran a floating casino in Manila Bay with Macau gambling magnate Stanley Ho during the rule of Philippine dictator Ferdinand Marcos. Razon is counting on the Philippines’ low tax rate to help draw gamblers from such countries as China and Korea.

The tall, tan 52-year-old isn’t alone in betting on the Philippines. Three other projects are in the works in an area the government hopes will become Manila’s version of the Strip. While US-based casino companies such as Wynn Resorts Ltd WYNN -0.56 percent and Las Vegas Sands Corp. LVS -2.13 percent have transformed Macau, Las Vegas and Singapore into global gambling hubs, Asian developers are backing Manila’s new resorts.

One casino is being built by Philippine property developer Belle Corp. A second is a joint venture between a unit of Malaysia’s Genting Bhd. 3182.KU -0.73 percent and the Philippines’ Alliance Global Group Inc. Japanese pachinko tycoon Kazuo Okada plans to build another.

They all are counting on a turnaround in the Philippines, where gambling revenue has grown slowly, to just $1.3 billion last year, according to brokerage firm CLSA. Though gambling has been legal here for decades, it has been off the radar of global casino developers.

Razon relates an exchange last year with Las Vegas Sands Chair Sheldon Adelson, whose company owns casinos in the world’s three biggest gambling markets: Macau, Las Vegas and Singapore. Told that Razon was building a casino here, Adelson asked, “Is gambling legal in the Philippines?” according to Razon.

Razon laughs as he recounts the exchange. “Yeah, I’m building a huge illegal casino in the Philippines.” Las Vegas Sands declines to comment on the encounter.

“The Philippines gambling market is still in the early stages of development,” says CIMB analyst Teng Yee Tan. But if Manila casino operators are willing to pay higher commissions to the middlemen who bring wealthy Chinese to casinos and “provide better quality service than rivals in jurisdictions like Macau and Singapore, they should be able to compete for high rollers in the region,” he says.

Analysts say one challenge is the country’s casino regulator, Philippine Amusement & Gaming Corp., which also runs its own casinos. Former top Pagcor executives have been indicted on corruption charges. And even its flagship casino is run down, with out-of-order Nescafe machines and taped-down electrical cords lining the dingy carpet.

Razon, whose net worth Forbes estimates at $1.6 billion, has no illusions about the sometimes brutal realities of his homeland. His office at the port of Manila is in one of the city’s most dangerous areas, surrounded by a shantytown reeking of sewage.

Razon says he switched his watch to his right wrist decades ago so that when he drove with his left arm out the window, thieves wouldn’t slash off the timepiece. In an interview, he declines to talk about his two children in detail, citing concerns about kidnapping.

Longtime employees describe Razon, the youngest of five children, as a direct, serious businessperson with a mischievous sense of humor.

He keeps a 2-foot-long arowana fish in his offices for good luck. One night, the fish leapt from its tank and didn’t survive. Razon says he made it clear to employees that a replacement would bring good luck only if it was given as a gift. “They got the hint,” he says.

Razon says he hates to lose a contest. In 1997, as the Asian financial crisis was just starting, Razon was at the Sao Paulo Stock Exchange bidding for rights to operate the Port of Santos in Brazil. The bidding had soared above $200 million, well beyond his company’s credit lines. Well-heeled rivals dropped out. But Razon kept shouting bids as his employees dragged him from the room. “It was clearly too much….I just didn’t want to lose,” he recalls.

The financial crisis hit Razon when the Philippines devalued its currency, effectively doubling the debt of his ports business, International Container Terminal Services Inc. He sold assets to pay down the debt.

“What I really didn’t want to do was work for the banks. We wouldn’t have been able to expand,” he says. With a clean balance sheet, he rebuilt his empire, which now spans 17 countries, from China to Brazil.

Razon has recruited several former Las Vegas Sands executives who helped open the Venetian Macao in 2007 to run the Solaire Manila. They hope to use their connections with Macau middlemen to recruit Chinese high rollers and are taking advantage of the Filipino Diaspora by hiring experienced casino workers from elsewhere in Asia.

Razon has visions of expanding internationally. He says he travels more than 200 days a year, meeting with government officials to negotiate port deals – connections that will help get casino licenses.

“Whatever my style is, it’s my style,” he says, adding that he doesn’t look to other business leaders for inspiration. “They like to write books,” he says. “The moment a CEO starts getting all these awards I sell the stock…they start believing that crap, you know?” -By KATE O’KEEFFE

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