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The struggles of an Australian company in Cambodia’s casino industry

Mon, Jan 14, 11:09am by Staff Writer

Cambodia is fast becoming a gambling hotspot in Asia with local and foreign companies alike taking a gamble on winning big in the country.

The town of Poipet on the country’s western border with Thailand has become somewhat of a gambling mecca in recent times and Australian company Donaco International has gotten in on the act.

A little more than three years ago, Donaco International purchased Poipet’s biggest casino, the Star Vegas for US$360 million.

Donaco’s executive director Ben Reichel said The Star Vegas is: “the largest, best-quality casino there (in Poipet) – 100 gaming tables, 120 slot machines … it’s probably the same size as The Star casino in Sydney.”

There’s a catch though. Casinos in Cambodia are fraught with risk as a groundswell of new casino licenses and an absence of government regulation places operators and players in a precarious position.

A prominent gaming industry advisor Peter Cohen said: “if you operate in Cambodia, you operate at your own risk.”

Mr Cohen helped draft Cambodia’s yet-to-be-introduced casino laws stating that: “you are competing with other operators who may not necessarily be fair.”

The past 18 months have been a rollercoaster for Donaco shareholders, with the company first listed on the Australian Securities Exchange in 2013.

Less than a year ago its market value was $290 million. Fast-forward to last Friday and it is worth just $51 million, at a share price of just 6.3 cents.

So where did it all go wrong for Donaco?

Mr Reichel put it simply and said: “we did a deal with the wrong person. That’s obvious in hindsight.”

The deal he is referring to is Donaco’s 2015 purchase of the Star Vegas.

The six-storey, 385-room resort and casino was generating approximately $82 million a year at the time.

The vendor is a Thai businessman named Somboon Sukcharoenkraisri and he received US$240 million in casino, 147 million Donaco shares (worth $132 million) and two seats on the board.

In return, he would remain as manager and guaranteed earnings of at least US$60 million per year for two years.

The board seats went to his son and a business associate.

Donaco’s major shareholder and grandson of casino billionaire Lim Goh Tong said at the time that: “this acquisition is a compelling opportunity for Donaco shareholders.”

Donaco’s second casino is located on the border, but the Vietnam-China border.

The Aristo International Hotel in northern Vietnam caters for Chinese gamblers who aren’t allowed to gamble in their own country, with the practice also forbidden in Vietnam.

Donaco’s annual earnings were just $15 million in 2014-15 from the casino, with the acquisition of the Star Vegas boosting earnings by 502 per cent to $91 million, according to an investor presentation.

That plan however failed to eventuate.

The death of the Thai King, Bhumibol Adulyadej in October 2016 shook the business.

“Most Thai people have never known another ruler. As a mark of respect, Thais stopped indulging and started mourning…they stopped coming to Poipet for about 100 days,” Mr Reichel said.

As a result Star Vegas’s earnings dropped 17 per cent for the second half of 2016 and they were forced to cancel a partnership with football club Manchester United.

Plenty of new casinos popped up in 2018

A host of new casinos sprung up in Cambodia in 2018 thanks to an influx of Chinese gamblers according to Casino News.

The South-East Asian nation issues 52 casino licenses in 2018 to bring the total number of licenses in the country to 150, figures from the Phnom Penh Post show.

This is a 50 per cent increase from the number of overall licenses awarded by the end of 2017.

There is a demand for casino gambling in the Preah Sihanouk province thanks to increased number of Chinese travellers to the region.

The southwestern province is home to 88 casinos according to the Deputy Director of the General Department of Financial Industry Ros Phirun.

The Finance Ministry is yet to complete its annual revenue report so it remains unclear how much Cambodia’s gambling venues generates for the government in 2018.

Mr Phirun told local media that the government targeted $56 million as its revenue target.

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