‘Game changer’

What’s turning out to be a game changer for the country’s fledgling gaming industry—and not necessarily for the better—is a shift in the tax regime from the 5-percent franchise tax on gross gaming revenues to a 30-percent tax on net income. This is seen affecting the bankability of the industry especially as investors had come in on the assumption of a competitive cost structure versus regional gaming hubs.

An earlier Credit Suisse report, for instance, noted that while tax rates on gaming revenues were lower in Singapore than in the Philippines, Singapore casinos were also taxed at the bottom line whereas gaming profits of Philippine casinos were not, while Malaysian casinos were likewise taxed at the bottom line, on top of having a higher effective tax rate on gaming revenues compared to the Philippines. As such, the firm was expecting Philippine casinos to split the tax savings with junket operators in the form of heftier commissions, thereby boosting traffic and profitability.

But with the looming change, industry regulator Philippine Amusement and Gaming Corp. might have to agree to slash licensee fees and indeed, Razon-led Bloomberry Resorts Corp. has cited this as a possibility. “Since the 5-percent franchise tax is imbedded in the gaming fee that licensees pay to Pagcor and since Pagcor said it will not pass on any tax to the licensee, we expect that gaming fees will be reduced to remove the 5-percent franchise tax component,” Bloomberry said in a disclosure Tuesday.

We asked Pagcor about this but the official spokesperson said it was too early to discuss the options barely a week from receiving the new issuance from the Bureau of Internal Revenue. “Pagcor and the licensees will still have to discuss the details of the new ruling. It’s too early to conclude on the options because the licensees still have not pushed the numbers on what the effect is on their income,” Pagcor said.

The Pagcor licensees are meeting and preparing a “collective” response, Bloomberry said. For its part, Melco Crown (Philippines) Resorts Corp. said it was evaluating its available options, including “legal remedies” and negotiations with regulatory bodies.

This changing of the rules in the middle of the game has cast dark clouds on gaming stocks of late. Doris C. Dumlao

The Belle dilemma

She is a low-key member of the country’s wealthiest family but is regarded as its “pillar of spiritual strength.” And given her deep ties to the Roman Catholic church, Henry Sy Sr.’s better half “Nanang” Felicidad Sy is likely to be influential in the move to consolidate SM property units, particularly with regards to the future of Belle Corp.

SM insiders acknowledged that while including Belle in the deal would enhance the value proposition of the consolidated entity, this might not be too palatable to its conservative and religious stockholders, particularly the matriarch. The line was drawn a long time ago that any gaming business would be an autonomous unit. Thus, while the official line whenever the SM group was asked about it was that it was “still under review,” we heard from insiders that Belle would not be included in the consolidation. Everything else—SM Development Corp., Highlands Prime, SM Prime Holdings and the privately held SM Land—will all be part of the consolidation under a single vehicle. And last week’s appointment of SM Prime chief finance officer Jeffrey Lim as the new president of SMDC only confirms what will be the vehicle for the consolidation.

But Belle—in partnership with Macau’s gaming giant Melco Crown in the $1-billion Belle Grande entertainment complex that will open in the third quarter of next year—is seen capable of standing on its own even if it was excluded from the consolidation. From Melco Crown’s rental payments alone, Belle is expected to generate at least $35 million a year on top of its gaming revenues. So by the time Belle Grande is fully operational, 90 percent of Belle’s revenues will come from this gaming project. One positive factor going for Belle is that among the four gaming firms in Pagcor City, Belle’s partner Melco is the only one operating out of Macau and thus has a database of junket operators and VIP gamers from key markets such as mainland China. The impact of a change in tax regime for Pagcor licensees on its share of gaming revenues, of course, is another story. Doris C. Dumlao

New Philweb investor

Listed firm Philweb Corp. has caught the eye of at least one foreign investor excited about the gaming industry in the country. Singapore-based hedge fund Proa Partners has  been buying shares of Philweb for more than two months now. Last Friday,  it disclosed that it was now the beneficial owner of (surprise,  surprise) 76 million shares in the company, equivalent to a stake of  5.31 percent.

At Tuesday’s closing price of P14.30 each, Proa Partners’ investment in Philweb is worth P1.08 billion. The hedge fund is reportedly  interested in Philweb, which it considers “the 7-Eleven of gaming” in  the country. And while it may not exactly be able to compete with the likes of Solaire, Philweb’s E-Games facilities are touted to be “reputable, safe and legal.” Just like a convenience store. Daxim L. Lucas

Get business alerts and a preview of Biz Buzz the evening before it comes out. Text ON INQ BUSINESS to 4467 (P2.50/alert).