Homepage
PR Newswire
17-05-2014, 02:30 PM
"We think that Genting will have the big casinos around the world and these guys (junior Lims) will pick up the boutique casinos."
The big gamble
3971 words
17 May 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Fortune A small casino on the border of China and Vietnam provides an intriguing insight into rising tensions – and Australian ambitions, writes Lisa Murray, with Lucy Gao.
A woman is hovering behind the baccarat tables at the Lao Cai International Hotel in northern Vietnam, clutching her fake, bright pink Chanel handbag. It's 9am and she is visibly anxious. But she dares not approach the man brooding at a table just five metres away. Her husband believes she has brought him bad luck.
The couple have been at this part-Australian-owned casino in the riverside town of Lao Cai, just across the border from China, for 11 hours straight.
Ms Wang, who will only give her last name, caught a few hours' sleep in her room upstairs but has come down to try to wrench her husband away from the gaming floor.
"He hasn't eaten or slept," she says nervously. "Gamblers' brains work differently."
An hour later, Ms Wang's husband, who quit his job as a timber floor tradesman and became a professional gambler a few years ago, has finally broken even. He decides to rest. They shuffle off in silence. Another man in a black T-shirt, holding a stack of chips, moves in quickly to take his place.
The Lao Cai International Hotel – one of Vietnam's first legal casinos – is all business. Something like an RSL Club, it is a no-frills offering for the Mandarin-speaking clientele, who pour across the border to come here. The one small bar on its gaming floor is limited to the bare necessities: Red Bull, Sprite, cigarettes and instant noodles. But the players aren't bothered. They are here for the casino's eight baccarat tables, not cocktails.
Most of the patrons are regulars from nearby Yunnan, a relatively undeveloped province in China's south with a population of 46 million. They are mining bosses, property developers, rice traders and fruit sellers. In the past decade, as China's economy more than quadrupled in size, even Yunnan has seen the rise of a class that feels comfortable enough to travel for its gambling fix, and to gamble increasingly higher sums.
The rise of that class is crucial to the strategy operating at Lao Cai, one that has turned this casino into an unlikely success story. So far, the returns for Australian backers have been substantial. But this investment is not for the timid.
Even though casinos are outlawed on the mainland, gambling in China is a national obsession. An estimated 910 billion yuan ($156 billion) is wagered illegally in the country every year, in gambling dens and on street corners across the country.
At least another 600 billion yuan is reportedly spent in offshore casinos, including China's special autonomous region of Macau, the only place in the country where they are allowed. Glamorous Macau, a smaller market than Las Vegas in 2006, is now more than seven times the size of that American landmark. Last year, Macau reported gambling revenue of $US45 billion.
This gambling obsession is why the Vietnamese government decided more than a decade ago to give the green light to a handful of casinos catering only to foreigners. Gambling is still banned for its own citizens but the casinos bring in tax revenue, development, and lead to jobs for locals.
The obsession is also why Joey and Benjamin Lim, scions of Malaysia's Genting gaming empire, chose to branch out from the family and be among the first casino operators in Vietnam.
And now it is Australian fund managers and superannuation funds which are also trying to better understand gamblers such as the Wangs.
Last year, the Lim brothers – Malaysia's answer to James Packer 10 years ago: young, wealthy, plugged into a global gaming network and full of casino plans – chose Australia as the place to list the casino's parent company, Donaco International.
As the federal government pushes businesses to become part of the "Asian Century" and Donaco opens up a new and much bigger venue in Lao Cai, the challenge for local investors is to look beyond the numbers.
They must balance the huge growth potential of this casino, on the doorstep of the largest gambling market in the world, against the risks associated with a regulatory environment that, at the very best, could be called opaque, and the ever-present geopolitical tensions between the communist governments of China and Vietnam.
Just this week, bloody protests erupted across southern Vietnam after China started drilling for oil in disputed waters near the Paracel Islands. At least two Chinese workers died and dozens of Chinese- and Taiwanese-owned factories were set on fire as relations between the two countries hit a new low.
Until now, Australian investors have seemed undaunted. Lao Cai may be far from the opulence of Macau but it has served the Lims well over the past decade and has already rewarded their new Australian backers. After the company's first capital raising in February last year, priced at 35¢, shares in Donaco more than quadrupled.
That allowed the Lims to raise $125 million on the local market over 18 months from the likes of Colonial First State, Wilson Asset Management and BT Investment.
Fund managers took a bet on the growth potential of a casino which also benefits from a relatively cheap, albeit low-skilled, local workforce, although some original backers, like Ellerston Capital, run by Crown director Ashok Jacob, sold out. After a big run, the shares fell over the past few months, dropping back below $1 this week and then, with news of the riots, closed Friday at 87¢.
The reality is this business relies entirely on the free flow of people and funds across the Chinese-Vietnamese border. The threat of border closures looms large, particularly as diplomatic relations deteriorate. China's foreign ministry said on Thursday it was "shocked" by the "trashing and burning activities" in the riots and said they had "everything to do with Vietnam indulgence".
At the very least, the latest violence is expected to lead to greater scrutiny along the border of both legal and illegal crossings. Last week, AFR Weekend spoke to at least 10 people in Lao Cai and Hekou, on the Chinese side, who claim illegal border crossings are still one of the most popular ways for Chinese people to gain access to the casino.
Border passes or visas can be applied for, but it seems many of the Chinese gamblers who flock to Lao Cai would rather not have their visits listed among immigration records, especially given China's official distaste for gambling. And so the eager players go the illegal way, usually by taking a ferry across the Red River, which divides the two towns. Interviewees also talked about how gamblers get round limits on the amount of cash that can be taken out of China.
The risk for the Lims and their backers is whether Chinese authorities will start to tighten the rules.
None of this seemed to be bothering the gamblers at the casino last Tuesday.Bigger and brighter casino Some coalmining bosses were already sitting at the VIP tables, where the minimum bet is $500. Others, such as Tian, a fruit vendor from the small Yunnan city of Yuxi, were trying to scrape enough money together for a $50 bet. Like most people in and around the casino, Tian was willing to disclose only his last name. But he did confess to losing all of his money over the past month, including some of his brother's savings.
"I'm too scared to go home," he admits. Instead, for the past month, he has been staying on the floors of friends' hotel rooms and waiting to see whether his luck will change. Some nights there is no bed and he sits it out in the casino.
That's no problem because "The Club", as it is sentimentally referred to by staff and regulars, is a 24-hour operation aimed squarely at the Chinese market. The only currency used is the Chinese yuan and the Vietnamese dealers, waiters and bar staff are required to speak fluent Mandarin.
In recent years, the casino has outgrown its ageing venue. On Sunday, its replacement, a $53 million, 12-storey casino complex officially opens. And next Friday, the Lim brothers, both in their mid-30s with a rumoured penchant for Cristal champagne, will host a ceremony for its launch.
It might be basic by Macau standards but the new venue towers over the town and boasts a five-star hotel with 428 rooms, a gaming floor with up to 50 tables and special VIP sections complete with private dining and massage chairs. If all goes well, it is expected to drive earnings up significantly over the next three years.
Tian is excited about the opening because he has heard managers will hand out "hongbaos" or red envelopes to regulars, a Chinese tradition on special occasions. The envelopes will be filled with a small amount of cash; most of it is likely to find its way back to the casino. Tian is hoping he can make his brother's money back and return home.
The new venue will be a substantial upgrade from The Club, where the leather trim on the baccarat tables is worn through and a sign in the corner warns patrons not to spit or ash on the already grubby carpet.
Some of the Lims' $125 million capital raising has been spent on the new casino; some has been earmarked for investments in other casinos around the region with a focus on Southeast Asia.Australian affinity
When the company was originally looking to raise money, it surprised the market by choosing the Australian Stock Exchange as its preferred home rather than Hong Kong, where the Lims are based, or the regional hub of Singapore.
Donaco's Sydney-based executive director is Ben Reichel, previously general counsel for wagering group Tab Limited and racing broadcaster Sky Channel. He had been working for Two Way Limited, a small Australian gaming company with which Donaco effectively merged and took over so it could list on the ASX. He chose to stick around.
Explaining the Lims' Australian listing, he says other Asian markets were crowded with big gaming stocks. "There's a lot of investors in the Australian market who understand the gaming industry and have done very well out of it over the years."
In spite of Donaco's share rise since, there have been some disappointments for investors. They include a lack of detail about the status of the new venue's gaming licence and how many tables it will be able to operate. There was also some concern about construction delays, which meant a missed opening for the important holiday period over Chinese New Year in February.
Just two weeks ago, the new casino was still a construction site, with piles of rubble and excavators lining the entrance road. The gaming floor was laid out with shiny new tables wrapped in plastic but bored workers were sprawled on the brightly coloured carpet. The marble floor in the elaborate entrance hall was yet to be finished.
From his office in Hong Kong, founder and managing director Joey Lim stresses this weekend is just the soft opening and operations will gradually ramp up. The eldest grandson of legendary Genting founder Lim Goh Tong and nephew of the Malaysian casino group's current chairman, K.T. Lim, he speaks carefully and slowly in a clipped British accent, as he lays out the founding story that led from North Vietnam to Sydney.Intrepid pioneers
It is clearly one he has told before.
It all started with an intrepid journey across the borderlands.
He and his late grandfather were alerted to the Vietnam opportunity in late 2001 but the elder Lim was concerned the venture would be "hamstrung" by Vietnam's "foreigner-only policy" for its casinos.
The pair flew to Hanoi and took the overnight train to Lao Cai. The government rolled out the red carpet (the Vietnam government still owns 5 per cent of the casino group, a stake recently reduced from its original 25 per cent), but the Lims were concerned about the region's economic future.
The elder Lim decided they should extend their trip and go up through China to see first-hand where the players might come from. It was a "harrowing experience", according to Joey Lim, who was just 24 at the time. Their driver fell asleep while navigating the winding mountain roads up through Yunnan. "Twice, the wheels actually went off the side of the road," he says.
But the Lims survived and ultimately went ahead with the Vietnamese casino.
"Along the way, my grandfather saw that there was a fair bit of potential", in terms of population and economic development in Yunnan, Lim says.
Plans for a rail line and new highway down to the border, which is now in place and has cut the 12-hour trip in half, "really clinched it for him".
It proved a good decision and, three-and-a-half years ago, the Lim brothers moved to more aggressively market the casino to junket operators and tour guides.
"We saw the business boom overnight," he says. During the six months ended December 31, gaming turnover at the casino was up 33 per cent to $862 million, with net gaming revenue rising by more than half to almost $9 million. (Although this is still a moderate result for a company with a $400 million market value.)Gambling on growth
"We literally can't accommodate all of the players that want to come down," Reichel says. "We work with about 24 junket operators but we can't accommodate more than two or three of them at one time. We have to put them on a roster."
On Chinese public holidays, more than a thousand people pack into the old casino's small gaming floor. Three separate junket operators told AFR Weekend the new venue would allow them to attract more high rollers, who expect a certain standard, while their regulars were also keen for the upgrade.
"We found our sweet spot was the premium mass market," says Lim.
He explains that the smaller, understated operation appeals to the type of gamblers that wouldn't quite make it as VIPs in Macau.
Spend $100,000 in Macau and you'll be lucky to get noticed among the super wealthy; in Lao Cai, you'll be treated to free accommodation, use of a Mercedes-Benz SUV and private gaming rooms.
"Macau is for the super rich," says Chen, a junket operator from Zhejiang province, south of Shanghai, earning commissions for bringing players to the casino. "Here the 'middle' rich are treated like high rollers."
Chen, in black T-shirt, shorts and thongs, shoulders a tell-tale satchel for his chips. Perched at one of the baccarat tables, he has placed a few bets himself in between delivering chips to his clients.
His point about the "middle" rich hits on the latest corporate strategy fad in China. Luxury labels such as Vuitton have been targeting the mainland wealthy for decades. But now global retailers such as Apple and accessible luxury goods brands like Coach have cottoned on to the power of the upper-middle-class consumer. The Lims have been targeting those middle-class spenders for more than 10 years.
That strategy and the Lims' pedigree are why investors such as Wilson Asset Management became involved. Says chairman Geoff Wilson: "They're extremely well-connected guys and we think they have an incredible opportunity to go global. Their plan is to have a number of casinos.
"We think that Genting will have the big casinos around the world and these guys will pick up the boutique casinos."Uneasy territory
But for now, Donaco is a one-casino company, and the stakes are high. There is the regulatory environment in which the Lao Cai casino must operate and the fact that investors' money is subject to the whims of two governments with a tense bilateral relationship which suffered one of its worst breakdowns this week since the two countries fought a short but brutal border war in 1979. During that fighting, Lao Cai was destroyed and after the war the border was closed for more than a decade, reopening only in 1991.
The two countries regularly lock horns over territorial disputes in the South China Sea but tensions have ratcheted up over the past two weeks following China's decision to deploy an oil rig in disputed waters near the Paracel Islands. Vietnam sent ships to the area which clashed with Chinese vessels. That triggered bloody protests in southern Vietnam, prompting a harsh exchange of words with Beijing. Chinese-focused businesses were targeted.
Lim admits China and Vietnam share a volatile history but says both Yunnan and Lao Cai province have built up substantial trade since then and are fairly autonomous when it comes to national politics.
"Every once in a while there will be a flare-up, especially over the South China Sea," he says. "But if they were to close off the border, they would just be hurting trade between the two provinces."
Reichel says so far the riots haven't affected business at the casino: "Our guys on the ground in Lao Cai are not seeing any signs of the current tensions between China and Vietnam, with Chinese players crossing the border freely. The riots that have occurred in the south are a very long way away from our property – about twice as far as the distance from Sydney to Melbourne."
Still, a particular risk for the casino is a potential crackdown, prompted by the tension, on illegal border crossings which usually involve night-time ferry rides across the Red River. The "unlucky" Ms Wang told AFR Weekend that she paid $15 for the service, which included transport to the ferry stop in Hekou and a van on the other side to pick them up and take them to the casino.
For wealthier gamblers doing an illegal crossing, junket operators offer a door-to-door service. Depending on a player's average bet size, a Land Rover, Mercedes-Benz or Porsche picks them up in Yunnan. A picturesque drive of up to six hours – past ridges lined with wind turbines and banana plantations – lands them in Hekou.
From here, says Huang, one of the drivers who regularly escorts players to Hekou, the car is dropped off and the gambler jumps on the back of a motorbike and is whisked away to the unofficial ferry stop.
The boat ride takes less than 10 minutes and there is no call for immigration checks or a passport stamp. Border guards are either avoided or paid a small "fee" for allowing the boat to drop people at the other side.
Certainly, there are gamblers who take advantage of an official 48-hour border pass available to Yunnan residents, which spares them the hassle of applying for a visa. But, says Yuk Wah Chan, an assistant professor at the City University of Hong Kong, a specialist who wrote a book on the Vietnamese-Chinese borderlands, "Traditionally, people crossed from one place to the other freely.
"It was part of the everyday life of borderlanders to cross the border for exchange of goods and family union. When border regulations were installed in the 1990s, then those natural crossings, like crossing the border through rivers, turned informal."
At least 10 people with direct knowledge of the practice confirmed to AFR Weekend that the night-time river crossings are still a popular way to enter Vietnam.
The ferry rides to Vietnam are both "easy" and "anonymous", explains Huang. Sporting a fresh crew-cut and wearing a tight white T-shirt and aviator sunglasses, Huang says he regularly drives big players from Kunming, Yunnan's capital, to Hekou. He claims a client recently lost 30 million yuan ($5.1 million) at the casino.
One young hotel manager, whose rooms overlook the Red River, explains there's no problem checking guests in without their passports. They just pay extra. His entire hotel is booked out by junket operators or players and some of them stay for months at a time, he says in broken Mandarin.
There are some signs of a tightening-up of the lax border controls. A ferry driver on the Hekou side, who ostensibly takes tourists on river cruises, says there is "no way" he would ever take a foreigner over to Lao Cai because the border guards wouldn't allow it.
His price for a Chinese person is expensive, about $50, and he attaches conditions; the passenger can stay only for the day and must be accompanied by the boat driver at all times.
This more careful approach may have first started in response to closer scrutiny by Chinese authorities, after the terrorist attack at Kunming Railway Station in March, in which 29 people were killed and 140 injured. Huang said the attack had prompted concern from authorities that the ferry route into Vietnam could be used by fleeing terrorists.
Lim insists these "informal" crossings are becoming less frequent: "When we first started operations the majority of the border crossings weren't through the checkpoint; they were predominantly across the river. But for the past three years, the majority were through [the official] border crossing."
There are other ways China can make it harder for gamblers to spend their money at offshore casinos. Over the past week, gaming stocks in Macau have been hit by a move from authorities to crack down on the use of bogus transactions at luxury stores.
Chinese nationals are limited to taking just 20,000 yuan out of the country in cash, so gamblers regularly buy an expensive watch or jewellery from stores near Macau's casinos using their Chinese credit card. They then return the item in exchange for cash.
The casinos have also reportedly been given a July deadline to shut down the operation of illegal China UnionPay mobile swipe-card devices, which have increasingly popped up on gaming floors.
And, finally, there are lingering fears that Chinese President Xi Jinping's anti-corruption campaign within the Communist Party ranks could start to affect Macau's trade. This might include the introduction of visa restrictions.
It's unclear how all of this would affect Donaco. The Lao Cai casino operates in a special economic zone where yuan is the main currency. Patrons are limited by the amount of money they can take out of the country but this is hard to track or control.
One junket operator, who used to be a dealer but decided to start his own business and asks not to be named, told AFR Weekend "there are ways" to get around the rules.
Players can deposit money in the junket operator's Chinese bank account and receive the chips when they arrive in Lao Cai.
"It all works itself out," he says.
Australian investors may have to take his word for it.
Also in Weekend Fin Writing on the wall American artist Jenny Holzer pays tribute to Australian indigenous storytelling with a downtown Sydney installation. The good sun Light can cure depression, keep the aged younger and make us happy and hard-working – and science is discovering how. Stairway to heaven Airlines are tempting the super rich with top-deck premium luxury class: the refit is expensive but the rewards promise to be ... umm, rich. How I became an Australian For novelist Leila Yusaf Chung, dealing with racism is just part of the road to acceptance. Also: Film with John McDonald; AFR Lunch with Sir Rod Eddington; Mark Latham's Relativities.
Fairfax Media Management Pty Limited
Document AFNR000020140516ea5h00002
The big gamble
3971 words
17 May 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Fortune A small casino on the border of China and Vietnam provides an intriguing insight into rising tensions – and Australian ambitions, writes Lisa Murray, with Lucy Gao.
A woman is hovering behind the baccarat tables at the Lao Cai International Hotel in northern Vietnam, clutching her fake, bright pink Chanel handbag. It's 9am and she is visibly anxious. But she dares not approach the man brooding at a table just five metres away. Her husband believes she has brought him bad luck.
The couple have been at this part-Australian-owned casino in the riverside town of Lao Cai, just across the border from China, for 11 hours straight.
Ms Wang, who will only give her last name, caught a few hours' sleep in her room upstairs but has come down to try to wrench her husband away from the gaming floor.
"He hasn't eaten or slept," she says nervously. "Gamblers' brains work differently."
An hour later, Ms Wang's husband, who quit his job as a timber floor tradesman and became a professional gambler a few years ago, has finally broken even. He decides to rest. They shuffle off in silence. Another man in a black T-shirt, holding a stack of chips, moves in quickly to take his place.
The Lao Cai International Hotel – one of Vietnam's first legal casinos – is all business. Something like an RSL Club, it is a no-frills offering for the Mandarin-speaking clientele, who pour across the border to come here. The one small bar on its gaming floor is limited to the bare necessities: Red Bull, Sprite, cigarettes and instant noodles. But the players aren't bothered. They are here for the casino's eight baccarat tables, not cocktails.
Most of the patrons are regulars from nearby Yunnan, a relatively undeveloped province in China's south with a population of 46 million. They are mining bosses, property developers, rice traders and fruit sellers. In the past decade, as China's economy more than quadrupled in size, even Yunnan has seen the rise of a class that feels comfortable enough to travel for its gambling fix, and to gamble increasingly higher sums.
The rise of that class is crucial to the strategy operating at Lao Cai, one that has turned this casino into an unlikely success story. So far, the returns for Australian backers have been substantial. But this investment is not for the timid.
Even though casinos are outlawed on the mainland, gambling in China is a national obsession. An estimated 910 billion yuan ($156 billion) is wagered illegally in the country every year, in gambling dens and on street corners across the country.
At least another 600 billion yuan is reportedly spent in offshore casinos, including China's special autonomous region of Macau, the only place in the country where they are allowed. Glamorous Macau, a smaller market than Las Vegas in 2006, is now more than seven times the size of that American landmark. Last year, Macau reported gambling revenue of $US45 billion.
This gambling obsession is why the Vietnamese government decided more than a decade ago to give the green light to a handful of casinos catering only to foreigners. Gambling is still banned for its own citizens but the casinos bring in tax revenue, development, and lead to jobs for locals.
The obsession is also why Joey and Benjamin Lim, scions of Malaysia's Genting gaming empire, chose to branch out from the family and be among the first casino operators in Vietnam.
And now it is Australian fund managers and superannuation funds which are also trying to better understand gamblers such as the Wangs.
Last year, the Lim brothers – Malaysia's answer to James Packer 10 years ago: young, wealthy, plugged into a global gaming network and full of casino plans – chose Australia as the place to list the casino's parent company, Donaco International.
As the federal government pushes businesses to become part of the "Asian Century" and Donaco opens up a new and much bigger venue in Lao Cai, the challenge for local investors is to look beyond the numbers.
They must balance the huge growth potential of this casino, on the doorstep of the largest gambling market in the world, against the risks associated with a regulatory environment that, at the very best, could be called opaque, and the ever-present geopolitical tensions between the communist governments of China and Vietnam.
Just this week, bloody protests erupted across southern Vietnam after China started drilling for oil in disputed waters near the Paracel Islands. At least two Chinese workers died and dozens of Chinese- and Taiwanese-owned factories were set on fire as relations between the two countries hit a new low.
Until now, Australian investors have seemed undaunted. Lao Cai may be far from the opulence of Macau but it has served the Lims well over the past decade and has already rewarded their new Australian backers. After the company's first capital raising in February last year, priced at 35¢, shares in Donaco more than quadrupled.
That allowed the Lims to raise $125 million on the local market over 18 months from the likes of Colonial First State, Wilson Asset Management and BT Investment.
Fund managers took a bet on the growth potential of a casino which also benefits from a relatively cheap, albeit low-skilled, local workforce, although some original backers, like Ellerston Capital, run by Crown director Ashok Jacob, sold out. After a big run, the shares fell over the past few months, dropping back below $1 this week and then, with news of the riots, closed Friday at 87¢.
The reality is this business relies entirely on the free flow of people and funds across the Chinese-Vietnamese border. The threat of border closures looms large, particularly as diplomatic relations deteriorate. China's foreign ministry said on Thursday it was "shocked" by the "trashing and burning activities" in the riots and said they had "everything to do with Vietnam indulgence".
At the very least, the latest violence is expected to lead to greater scrutiny along the border of both legal and illegal crossings. Last week, AFR Weekend spoke to at least 10 people in Lao Cai and Hekou, on the Chinese side, who claim illegal border crossings are still one of the most popular ways for Chinese people to gain access to the casino.
Border passes or visas can be applied for, but it seems many of the Chinese gamblers who flock to Lao Cai would rather not have their visits listed among immigration records, especially given China's official distaste for gambling. And so the eager players go the illegal way, usually by taking a ferry across the Red River, which divides the two towns. Interviewees also talked about how gamblers get round limits on the amount of cash that can be taken out of China.
The risk for the Lims and their backers is whether Chinese authorities will start to tighten the rules.
None of this seemed to be bothering the gamblers at the casino last Tuesday.Bigger and brighter casino Some coalmining bosses were already sitting at the VIP tables, where the minimum bet is $500. Others, such as Tian, a fruit vendor from the small Yunnan city of Yuxi, were trying to scrape enough money together for a $50 bet. Like most people in and around the casino, Tian was willing to disclose only his last name. But he did confess to losing all of his money over the past month, including some of his brother's savings.
"I'm too scared to go home," he admits. Instead, for the past month, he has been staying on the floors of friends' hotel rooms and waiting to see whether his luck will change. Some nights there is no bed and he sits it out in the casino.
That's no problem because "The Club", as it is sentimentally referred to by staff and regulars, is a 24-hour operation aimed squarely at the Chinese market. The only currency used is the Chinese yuan and the Vietnamese dealers, waiters and bar staff are required to speak fluent Mandarin.
In recent years, the casino has outgrown its ageing venue. On Sunday, its replacement, a $53 million, 12-storey casino complex officially opens. And next Friday, the Lim brothers, both in their mid-30s with a rumoured penchant for Cristal champagne, will host a ceremony for its launch.
It might be basic by Macau standards but the new venue towers over the town and boasts a five-star hotel with 428 rooms, a gaming floor with up to 50 tables and special VIP sections complete with private dining and massage chairs. If all goes well, it is expected to drive earnings up significantly over the next three years.
Tian is excited about the opening because he has heard managers will hand out "hongbaos" or red envelopes to regulars, a Chinese tradition on special occasions. The envelopes will be filled with a small amount of cash; most of it is likely to find its way back to the casino. Tian is hoping he can make his brother's money back and return home.
The new venue will be a substantial upgrade from The Club, where the leather trim on the baccarat tables is worn through and a sign in the corner warns patrons not to spit or ash on the already grubby carpet.
Some of the Lims' $125 million capital raising has been spent on the new casino; some has been earmarked for investments in other casinos around the region with a focus on Southeast Asia.Australian affinity
When the company was originally looking to raise money, it surprised the market by choosing the Australian Stock Exchange as its preferred home rather than Hong Kong, where the Lims are based, or the regional hub of Singapore.
Donaco's Sydney-based executive director is Ben Reichel, previously general counsel for wagering group Tab Limited and racing broadcaster Sky Channel. He had been working for Two Way Limited, a small Australian gaming company with which Donaco effectively merged and took over so it could list on the ASX. He chose to stick around.
Explaining the Lims' Australian listing, he says other Asian markets were crowded with big gaming stocks. "There's a lot of investors in the Australian market who understand the gaming industry and have done very well out of it over the years."
In spite of Donaco's share rise since, there have been some disappointments for investors. They include a lack of detail about the status of the new venue's gaming licence and how many tables it will be able to operate. There was also some concern about construction delays, which meant a missed opening for the important holiday period over Chinese New Year in February.
Just two weeks ago, the new casino was still a construction site, with piles of rubble and excavators lining the entrance road. The gaming floor was laid out with shiny new tables wrapped in plastic but bored workers were sprawled on the brightly coloured carpet. The marble floor in the elaborate entrance hall was yet to be finished.
From his office in Hong Kong, founder and managing director Joey Lim stresses this weekend is just the soft opening and operations will gradually ramp up. The eldest grandson of legendary Genting founder Lim Goh Tong and nephew of the Malaysian casino group's current chairman, K.T. Lim, he speaks carefully and slowly in a clipped British accent, as he lays out the founding story that led from North Vietnam to Sydney.Intrepid pioneers
It is clearly one he has told before.
It all started with an intrepid journey across the borderlands.
He and his late grandfather were alerted to the Vietnam opportunity in late 2001 but the elder Lim was concerned the venture would be "hamstrung" by Vietnam's "foreigner-only policy" for its casinos.
The pair flew to Hanoi and took the overnight train to Lao Cai. The government rolled out the red carpet (the Vietnam government still owns 5 per cent of the casino group, a stake recently reduced from its original 25 per cent), but the Lims were concerned about the region's economic future.
The elder Lim decided they should extend their trip and go up through China to see first-hand where the players might come from. It was a "harrowing experience", according to Joey Lim, who was just 24 at the time. Their driver fell asleep while navigating the winding mountain roads up through Yunnan. "Twice, the wheels actually went off the side of the road," he says.
But the Lims survived and ultimately went ahead with the Vietnamese casino.
"Along the way, my grandfather saw that there was a fair bit of potential", in terms of population and economic development in Yunnan, Lim says.
Plans for a rail line and new highway down to the border, which is now in place and has cut the 12-hour trip in half, "really clinched it for him".
It proved a good decision and, three-and-a-half years ago, the Lim brothers moved to more aggressively market the casino to junket operators and tour guides.
"We saw the business boom overnight," he says. During the six months ended December 31, gaming turnover at the casino was up 33 per cent to $862 million, with net gaming revenue rising by more than half to almost $9 million. (Although this is still a moderate result for a company with a $400 million market value.)Gambling on growth
"We literally can't accommodate all of the players that want to come down," Reichel says. "We work with about 24 junket operators but we can't accommodate more than two or three of them at one time. We have to put them on a roster."
On Chinese public holidays, more than a thousand people pack into the old casino's small gaming floor. Three separate junket operators told AFR Weekend the new venue would allow them to attract more high rollers, who expect a certain standard, while their regulars were also keen for the upgrade.
"We found our sweet spot was the premium mass market," says Lim.
He explains that the smaller, understated operation appeals to the type of gamblers that wouldn't quite make it as VIPs in Macau.
Spend $100,000 in Macau and you'll be lucky to get noticed among the super wealthy; in Lao Cai, you'll be treated to free accommodation, use of a Mercedes-Benz SUV and private gaming rooms.
"Macau is for the super rich," says Chen, a junket operator from Zhejiang province, south of Shanghai, earning commissions for bringing players to the casino. "Here the 'middle' rich are treated like high rollers."
Chen, in black T-shirt, shorts and thongs, shoulders a tell-tale satchel for his chips. Perched at one of the baccarat tables, he has placed a few bets himself in between delivering chips to his clients.
His point about the "middle" rich hits on the latest corporate strategy fad in China. Luxury labels such as Vuitton have been targeting the mainland wealthy for decades. But now global retailers such as Apple and accessible luxury goods brands like Coach have cottoned on to the power of the upper-middle-class consumer. The Lims have been targeting those middle-class spenders for more than 10 years.
That strategy and the Lims' pedigree are why investors such as Wilson Asset Management became involved. Says chairman Geoff Wilson: "They're extremely well-connected guys and we think they have an incredible opportunity to go global. Their plan is to have a number of casinos.
"We think that Genting will have the big casinos around the world and these guys will pick up the boutique casinos."Uneasy territory
But for now, Donaco is a one-casino company, and the stakes are high. There is the regulatory environment in which the Lao Cai casino must operate and the fact that investors' money is subject to the whims of two governments with a tense bilateral relationship which suffered one of its worst breakdowns this week since the two countries fought a short but brutal border war in 1979. During that fighting, Lao Cai was destroyed and after the war the border was closed for more than a decade, reopening only in 1991.
The two countries regularly lock horns over territorial disputes in the South China Sea but tensions have ratcheted up over the past two weeks following China's decision to deploy an oil rig in disputed waters near the Paracel Islands. Vietnam sent ships to the area which clashed with Chinese vessels. That triggered bloody protests in southern Vietnam, prompting a harsh exchange of words with Beijing. Chinese-focused businesses were targeted.
Lim admits China and Vietnam share a volatile history but says both Yunnan and Lao Cai province have built up substantial trade since then and are fairly autonomous when it comes to national politics.
"Every once in a while there will be a flare-up, especially over the South China Sea," he says. "But if they were to close off the border, they would just be hurting trade between the two provinces."
Reichel says so far the riots haven't affected business at the casino: "Our guys on the ground in Lao Cai are not seeing any signs of the current tensions between China and Vietnam, with Chinese players crossing the border freely. The riots that have occurred in the south are a very long way away from our property – about twice as far as the distance from Sydney to Melbourne."
Still, a particular risk for the casino is a potential crackdown, prompted by the tension, on illegal border crossings which usually involve night-time ferry rides across the Red River. The "unlucky" Ms Wang told AFR Weekend that she paid $15 for the service, which included transport to the ferry stop in Hekou and a van on the other side to pick them up and take them to the casino.
For wealthier gamblers doing an illegal crossing, junket operators offer a door-to-door service. Depending on a player's average bet size, a Land Rover, Mercedes-Benz or Porsche picks them up in Yunnan. A picturesque drive of up to six hours – past ridges lined with wind turbines and banana plantations – lands them in Hekou.
From here, says Huang, one of the drivers who regularly escorts players to Hekou, the car is dropped off and the gambler jumps on the back of a motorbike and is whisked away to the unofficial ferry stop.
The boat ride takes less than 10 minutes and there is no call for immigration checks or a passport stamp. Border guards are either avoided or paid a small "fee" for allowing the boat to drop people at the other side.
Certainly, there are gamblers who take advantage of an official 48-hour border pass available to Yunnan residents, which spares them the hassle of applying for a visa. But, says Yuk Wah Chan, an assistant professor at the City University of Hong Kong, a specialist who wrote a book on the Vietnamese-Chinese borderlands, "Traditionally, people crossed from one place to the other freely.
"It was part of the everyday life of borderlanders to cross the border for exchange of goods and family union. When border regulations were installed in the 1990s, then those natural crossings, like crossing the border through rivers, turned informal."
At least 10 people with direct knowledge of the practice confirmed to AFR Weekend that the night-time river crossings are still a popular way to enter Vietnam.
The ferry rides to Vietnam are both "easy" and "anonymous", explains Huang. Sporting a fresh crew-cut and wearing a tight white T-shirt and aviator sunglasses, Huang says he regularly drives big players from Kunming, Yunnan's capital, to Hekou. He claims a client recently lost 30 million yuan ($5.1 million) at the casino.
One young hotel manager, whose rooms overlook the Red River, explains there's no problem checking guests in without their passports. They just pay extra. His entire hotel is booked out by junket operators or players and some of them stay for months at a time, he says in broken Mandarin.
There are some signs of a tightening-up of the lax border controls. A ferry driver on the Hekou side, who ostensibly takes tourists on river cruises, says there is "no way" he would ever take a foreigner over to Lao Cai because the border guards wouldn't allow it.
His price for a Chinese person is expensive, about $50, and he attaches conditions; the passenger can stay only for the day and must be accompanied by the boat driver at all times.
This more careful approach may have first started in response to closer scrutiny by Chinese authorities, after the terrorist attack at Kunming Railway Station in March, in which 29 people were killed and 140 injured. Huang said the attack had prompted concern from authorities that the ferry route into Vietnam could be used by fleeing terrorists.
Lim insists these "informal" crossings are becoming less frequent: "When we first started operations the majority of the border crossings weren't through the checkpoint; they were predominantly across the river. But for the past three years, the majority were through [the official] border crossing."
There are other ways China can make it harder for gamblers to spend their money at offshore casinos. Over the past week, gaming stocks in Macau have been hit by a move from authorities to crack down on the use of bogus transactions at luxury stores.
Chinese nationals are limited to taking just 20,000 yuan out of the country in cash, so gamblers regularly buy an expensive watch or jewellery from stores near Macau's casinos using their Chinese credit card. They then return the item in exchange for cash.
The casinos have also reportedly been given a July deadline to shut down the operation of illegal China UnionPay mobile swipe-card devices, which have increasingly popped up on gaming floors.
And, finally, there are lingering fears that Chinese President Xi Jinping's anti-corruption campaign within the Communist Party ranks could start to affect Macau's trade. This might include the introduction of visa restrictions.
It's unclear how all of this would affect Donaco. The Lao Cai casino operates in a special economic zone where yuan is the main currency. Patrons are limited by the amount of money they can take out of the country but this is hard to track or control.
One junket operator, who used to be a dealer but decided to start his own business and asks not to be named, told AFR Weekend "there are ways" to get around the rules.
Players can deposit money in the junket operator's Chinese bank account and receive the chips when they arrive in Lao Cai.
"It all works itself out," he says.
Australian investors may have to take his word for it.
Also in Weekend Fin Writing on the wall American artist Jenny Holzer pays tribute to Australian indigenous storytelling with a downtown Sydney installation. The good sun Light can cure depression, keep the aged younger and make us happy and hard-working – and science is discovering how. Stairway to heaven Airlines are tempting the super rich with top-deck premium luxury class: the refit is expensive but the rewards promise to be ... umm, rich. How I became an Australian For novelist Leila Yusaf Chung, dealing with racism is just part of the road to acceptance. Also: Film with John McDonald; AFR Lunch with Sir Rod Eddington; Mark Latham's Relativities.
Fairfax Media Management Pty Limited
Document AFNR000020140516ea5h00002