PH gaming stocks: ‘Don’t sell, just hold’

The Philippine gaming sector stands at a crucial juncture in its history— one that could make or break the industry that employs thousands of people and has brought billions of dollars worth of investments into the country.

Over the last few years, the industry has felt that pinch from the sudden drop in arrivals of high rollers from China, specifically in the gaming haven of Macau, thanks to the anticorruption drive imposed by Beijing which deterred its citizens from the profligate lifestyles that casinos have become associated with.

But the Philippine gaming industry had an answer to this sudden decline in arrivals from China. Most casino firms simply expanded their offerings to broaden their revenue base. From being solely dependent on gambling previously, casino operators like Bloomberry Resorts Corp. and Melco Crown Philippines have started to lean more on earnings from activities that were previously seen only in supporting roles.

These include family-oriented theme parks—like in the case of the Dreamplay activity center in the City of Dreams resort and a beach resort-themed venue for the soon-to-be-opened Tiger Resort of Japanese businessman Kazuo Okada, various retail and dining operations, as well as a theater for performing arts for Bloomberry’s Solaire Resort.

But no sooner had the gaming industry regained its footing than it was hit by another crisis, and perhaps one that is bigger than simply a shortage of high-spending gamblers from the Chinese mainland.

Revelations last month that local casinos had played a key role in the attempt to launder $81 million in funds stolen from the Bangladeshi central bank’s accounts in New York had put the industry under the bright harsh light of public scrutiny, leading many to question its prospects and the financial viability of Philippine gaming’s business model going forward.

READ: MONEY LAUNDERING: Where did $81 million go? / Timeline: $81-M Money Laundering

So, from an investor’s perspective, is it time to unload gaming stocks?

Industry analyst Rafi Farber, writing in the gaming industry news website CalvinAyre.com, said that for those holding Philippine gaming stocks, while it wasn’t time to sell, it was time to watch.

In his analysis, Farber points out that, due to geopolitical concerns, the US is unlikely to lean on Philippine authorities to tighten antimoney laundering laws as hard as it did in the previous decade when the US-backed Financial Action Task Force threatened to put the country in its blacklist unless laws to deter the trafficking of “dirty money” were enacted.

Specifically, the analyst points out that ongoing tensions between the US and China will make it less likely that the former will lean on the Philippines, which is a key ally in the US bid to contain China’s ambitions in the region.

“What is happening now at the Philippines Senate is probably just a show to placate the Bangladeshis,” he said. “Filipinos may extend an olive branch by trying to find some of the money and returning it, but that’s about all.”

He said that the fact that local gaming was regulated by government-run Philippine Amusement and Gaming Corp. —and that the agency was a significant contributor to the state’s coffers, any changes in the country’s anti-money laundering laws would not be as drastic as to kill the industry.

“Just as governments all over the world monopolize the gaming industry into state-owned lotteries to keep the revenue all to themselves, so too the Philippines government gives special exemption to its own operators in reporting requirements for suspicious money transfers,” Ferber said. “That’s probably not going to change.”

In contrast, he pointed out that the Chinese government was killing the Macau gaming industry and driving many of its players to offshore gaming centers like the Philippines due to its anticorruption efforts.

“So if you have any Philippines gaming stocks, stay informed, but no need to panic out of them only because of a Bangladeshi heist,” the analyst said. “This Bangladesh incident is probably just a tempest in a teapot, and the Philippines will likely keep profiting from Macau’s antimoney laundering suicide.”

Despite these views, it looks unlikely that the local gaming sector will escape mounting pressure to reform the Anti-Money Laundering Law, specifically by including casinos on the list of “covered institutions” that are subject to the regulatory oversight of the  Anti-Money Laundering Council.

No less than Pagcor chair and general manager Cristino Naguiat Jr. had said during recent Senate hearings that the industry had no problems with being put under the ambit of AMLC. He did point out, however, that the problem in the recent Bangladeshi heist was not due to any casino’s noncompliance with Philippine laws but with the failure of the banking system to detect the suspicious nature of the $81 million inward remittance—a view echoed by Bloomberry chair Enrique Razon Jr.

Ultimately, however, even the fiercely independent gaming industry chieftains bow to the greater priorities of the nation.

“I have full trust and confidence in the wisdom of our legislators,” said Willy Ocier who is vice chair of leisure and gaming firm Belle Corp., a stakeholder in the City of Dreams casino resort development.

While he acknowledges that it is important to preserve the gains made by the local gaming industry in recent years, the executive knows that the interests of the sector must take a backseat to the interests of the entire economy, and ultimately, the broader society.

“Country comes first,” Ocier said. TVJ