In an April 21 filing to the Hong Kong Stock Exchange, Cambodian casino operator NagaCorp said it will spend $3.5 billion to develop a third casino resort in the capital city of Phnom Penh.
Analysts are questioning the viability of the plan, which has a price tag equal to one-sixth of the country’s GDP excluding land costs, according to the Nikkei Asian Review.
Shaun McCamley of Euro Pacific Asia Consulting said it’s hard to justify a lavish third property in a city where NagaCorp already holds a monopoly, calling it “too ambitious.”
“The biggest problem by overspending will be putting overbearing pressure on operations to come up with sufficient revenues to meet the repayments,” McCamley said. NagaCorp has pinned its expectations on continuing patronage by Chinese high rollers.
“In a supercompetitive VIP market, which is where Naga will be looking to gain the required funds from, it’s going to be very tough and ultimately could mean the property will be relying more on good luck than working within normal, budgeted, theoretical hold percentages,” McCamley said.
His concerns may be widespread, as share prices fell 20 percent after the initial announcement of the project on April 3. CIMB Securities gaming analyst Michael Ting said the company’s investment “should look relatively more reasonable” in the long term, but could take 15 years to break even.
In the filing, Naga said CEO Chen Lip Keong would fund 50 percent of development costs and the remainder would come from internally generated cash, Nikkei reported. In return Chen will receive 1.14 billion settlement shares, increasing the billionaire’s stake in the company from 66.1 percent to 73.17 percent.
Global Market Advisors analyst Andrew Klebanow said the CEO “is not averse to putting a lot of skin in the game and this funding plan is indicative of it.”
With a floor area of about 550,000 square meters (almost 6 million square feet), Naga 3 would include five hotel towers with almost 5,000 rooms; a 12-story “multi-entertainment” center; an outlet mall; a digital theme park; and a casino with 800 gaming tables and 2,500 electronic gaming machines.
Lorien Pilling of Global Betting and Gaming Consultants said the grand plans rival developments in Las Vegas, Singapore and Europe, adding, “Competition for the tourists’ dollar is getting fiercer.”
Analysts have worries beyond than the scope of the investment. Some say the booming casino industry in coastal Sihanoukville could challenge the Phnom Penh operator in the future, with Macau-based junkets looking to establish a presence there.
In 2018, the Cambodian government set a goal to double tourist arrivals to 12 million by 2025, and it is investing in new airports to serve Phnom Penh and Siem Reap. Official figures show tourist arrivals up 11 percent to 6.2 million last year, including a 67 percent increase in Chinese tourists to 2 million.
Naga 3 has also drawn fire from activists for its location on the former site of the White Building, a social housing complex built in the 1960s and demolished in 2017; authorities had promised it would become a Japanese-built housing development, with floors set aside for evicted residents, until Naga took over.
