Caesars Entertainment and Guangzhou R&F Announce a Joint Venture for a South Korean Casino

Last updated on November 2nd, 2018

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Caesars Entertainment named a partner in a joint venture to build a casino on Yeongjong Island in South Korea. The partner is Guangzhou R&F Properties Co Ltd, a hotel and property development firm based in China.

The plan is to build an integrated resort in Midan City on Yeongjong Island, one of a few remote locations in South Korea where land-based casinos are legal. South Koreans cannot gamble legally in the brick-and-mortar casinos, but the Korean Peninsula is a good place to attract high rollers and mass market players from Japan and Northern China.

Each Company Holds 50%

A filing with the Hong Kong Stock Exchange states that Guangzhou R&F, referred to simply as R&F, plans to hold 50% of the joint venture. Caesars Entertainment, the Las Vegas casino company, is set to hold the other 50% of the company. The joint venture’s name is Incheon JV.

Both parties are expected to contribute an equal $30.5 million to the project. Later equity contributions for the development are expected to be $110 million for each side, for a total investment of $281 million.

Further Investments by Both Sides

The parties plan to make the $110 million in further investments in four separate tranches. Each of these is dependant on reaching various development milestones. In the HKSE filing, the milestone include “certain necessary changes in the gaming licensing laws regarding credit rating requirements of the parties.”

Caesars Entertainment CEOC Lawsuit

That last phrase is a reference to Caesars Entertainment’s current bankruptcy case, which remains deadlocked in American courts at the moment. Caesars Entertainment filed a bankruptcy reorganization plan for Caesars Entertainment Operations Company in January 2014. The CEOC filing was countered by a lawsuit by Caesars’ junior creditors, who claim the plan leaves them with nearly $9 billion in debt, but robs them of assets to offset the debt.

The lawsuit continues to grind its way through the American court system. Several judge rulings and independent evaluations have indicated Caesars is likely to pay billions in the lawsuit, and the company’s executives have threatened they might have to declare bankruptcy, if judgments go against them. Caesars has tried to settle the dispute with billion-dollar offers, but the creditors are holding out for more cash.

The reference in the Incheon JV filing appears to protect Guangzhou in the case Caesars’ lawsuit has a bad ending. Caesars is the single-largest US casino company, if one looks at the domestic holdings of Las Vegas casino companies. Las Vegas Sands, MGM Resorts, and Wynn Resorts are all heavily invested in the Macau gaming industry, where Caesars is not. The South Korean development is a way for Caesars to venture into the global casino market.

Incheon JV Casino Development

Incheon JV has a March 10, 2017 date for an initial closing of the deal. At that time, Guangzhou must provide a loan facility of not more than $100 million to keep the venture going. If the two companies continue with the development, they plan to open a South Korean casino sometimes in 2020.

The joint venture announcement is a boon to Lippo Group, which has been involved with Caesars’ attempts to build a South Korean casino for several years. Lippo Group has been attempting to sell its part in the venture over the past year, and announced in November 2016 it would seek once again to sell its part of the joint venture.

Chinese-American Relations Face Tense Months Ahead

With the onset of the Trump Administration in Washington D.C., a joint venture by Chinese and American companies could face tense months ahead. President-Elect Donald Trump appears as if he wants to create a more adversarial relationship with the Chinese government on the issues of trade, North Korea, and Taiwan.

Because Trump has suggest he might not continue the US government’s 44-year support for the One-China Policy, it appears as if he is going to pressure China to provide the United States with a more favorable trade policy, while itself pressuring North Korea to behave better on the Korean Peninsula. All these moves could make the Incheon JV partnership uncomfortable for a while, especially when building in Korea.

The Opening to Russia

It is hard to know what Donald Trump’s foreign policy plans are, but one theory is he is doing the reverse of what Richard Nixon did. Because the Soviet Union and Communist China were rivals — and sometimes enemies — in the 1960s and 1970s, it was Nixon’s policy to create an “opening to China”. Nixon used China as leverage with the Soviet Union, eventually causing the Russians and Chinese to compete for US favor. This triangulation was supposed to help the US extract itself from the Vietnam War.

Donald Trump appears to be doing the opposite of Richard Nixon. Trump is pivoting towards a more friendly relationship with Russia, while seeking concessions from China. The idea might be to leverage detente with Vladimir Putin in order to get more at the bargaining table with China. If so, then the posturing might be nothing more than a diplomatic squabble started rudely. As soon as a deal is done, it might be business as usual.

The alternative theory is that Donald Trump does not know what he is doing, and the current maneuveurs are bad manners and simple blunders. Or the “opening to Russia” plan might backfire tremendously, causing a more fundamental rift between the United States and China. That would not be good for the Caesars/R&F joint venture; but then, it would not be good for America, China, or the global economy.