Iao Kun Group closes another Macau VIP room, admits Jeju Sun deal has lapsed

Iao Kun Group closes another Macau VIP room, admits Jeju Sun deal has lapsed

Macau casino junket investor Iao Kun Group Holding Ltd (IKGH) has confirmed that its South Korean casino plans have come to naught.

Iao Kun Group closes another Macau VIP room, admits Jeju Sun deal has lapsedOn Friday, IKGH issued a statement saying it was closing yet another of its Macau casino VIP rooms, leaving the company with just one active room – at Melco Crown’s City of Dreams property – down from five as recently as one month ago.

IKGH said its VIP room at SJM Holdings’ Le Royal Arc Casino (aka L’Arc Macau) was closed Sept. 29 and the related collaborator agreement with Lee Wai Man had been terminated. The company says the closure is expected to produce annual cost savings of around $750k.

IKGH said its current focus is on collecting some of the $159m in outstanding VIP gambling debts it revealed in its H1 earnings results last month. The company says that due to “the lengthening and difficulty of collecting markers receivable,” it will cease offering credit to clients and therefore “expects business volume to be minimal” in the near term.

IKGH also admitted that its agreement to purchase the Jeju Sun Hotel & Casino from Philippine casino operator Bloomberry Resorts “has lapsed.” IKGH announced the $102m deal in June, but revealed last month that it was having trouble raising the necessary financing. IKGH assured investors that it had received an extension on the deal’s closing deadline, but Bloomberry subsequently issued a terse release rejecting IKGH’s claims of an extension.

IKGH’s acknowledgement of its failure to arrange the necessary financing to close the Jeju Sun deal has dealt its already suffering stock price a further blow. After closing Thursday at 35¢, the stock sunk as low as 30¢ on the news before nudging back up a penny.

IKGH is currently under a 180-day notice by the NASDAQ exchange to boost its share price back up past the exchange’s $1 minimum. Should IKGH fail to boost its price above that minimum, its stock will be purged from the exchange.

The Jeju Sun acquisition was supposed to be IKGH’s lifeline; a transition from junket to casino operator. With its junket business now a shadow of its former self and no other irons in the fire, serious questions are being asked about the company’s ability to continue.

Ironically, IKGH’s decline comes just as Macau’s long-suffering VIP market is showing signs of life. The Macau market posted its second straight month of gaming revenue gains in September, and analysts are suggesting that a surge in VIP gaming was largely responsible for the month’s strong showing.

While official numbers on Macau’s Q3 revenue split between VIP and mass market gaming won’t be released until later this month, JP Morgan analysts suggested that September’s VIP turnover grew 5% year-on-year, the first such gain in 29 months. The analysts credited the rise to excitement over the opening of the new high-end focused Wynn Palace, as well as heavy marketing by Sands China to promote its new Parisian Macao property.