Melco Crown Entertainment CEO Lawrence Ho’s Russian casino project took an unexpected turn late last week after Russian police detained Ho’s local partner. Oleg Drozdov, who owns a 30% stake in Ho’s casino project in the Primorye region near Vladivostok, was detained for questioning by Russian authorities investigating alleged business malpractices at a solid waste treatment facility built by a Drozdov-connected company, OOO Vladivostokservis. The alleged chicanery dates back to the construction of the facility in 2009-10 and reportedly involves a sum totaling 367m rubles (US $11.2m).
After Russian media outlet Kommersant broke the news on Nov. 7, Ho’s Summit Ascent Holdings issued a note to the Hong Kong Stock Exchange clarifying Drozdov’s role in the complicated web of companies behind the Primorye project. The casino is being developed by First Gambling Company of the East LLC (FGCE), which is wholly owned by Oriental Regent Ltd. Drozdov controls 30% of Oriental Regent via his British Virgin Island company Elegant City Ltd. Taiwanese electronic gaming device maker Firich Enterprise Ltd. owns 19% of Oriental Regent, while the remaining 51% is controlled by Ho (46% through Summit Ascent and 5% via Melco International Development). Melco Crown Entertainment, which has casino projects on the go in Macau and the Philippines, is not part of this Russian soup.
Summit Ascent informed the Exchange that Primorsky Administration officials have assured them that the investigation into Drozdov’s past activities would in no way affect the Primorye casino plans. Summit Ascent also clarified that while Drozdov is an indirect shareholder in FGCE, he has no executive duties nor will he take any role in the casino’s operations, as he “has no prior experience in the gaming industry and intends to devote his time to his other business pursuits.” All the same, Summit Ascent reminded shareholders that it could always execute a buy out clause if “any relevant gaming regulatory authority” deemed Drozdov an “unsuitable associate.”
Despite a proposed tax rate said to be among the lowest in Asia, the Primorye gaming zone has so far attracted only two confirmed casino projects. NagaCorp, which operates casinos in Cambodia, is planning a $350m facility it hopes to open in 2018, a year earlier than Oriental Regent’s timetable.