Global credit ratings firm, Fitch Ratings Incorporated, has reportedly announced that firms hoping to win the right to operate one of the three integrated casino resorts being planned for Japan could face problems in securing enough outside development cash due to a stipulation that is to require them to reapply for their licenses every ten years.

According to a report from GGRAsia, the financial services organization used a Wednesday examination authored by analysts Roman Schorr, Alex Bumazhny and Colin Mansfield to describe the planned condition as the ‘biggest obstacle to securing bank financing.’ The study also cited as a potential problem a second provision that would allow local authorities to shutter any finished casino if these were to be deemed as ‘not in the locality’s best interests.’

Area ambitions:

Although most gambling is currently illegal in Japan, the coalition government of Prime Minister, Shinzo Abe passed legislation in July of last year that is to see the nation of some 126 million people offer up a trio of casino licenses. In order to be selected as a host for one of these coming facilities, which are locally known as integrated casino resorts, communities are being required to partner with an experienced operator before submitting their final plans to the central government in Tokyo.

Extreme expense:

Although numerous analysts had previously estimated that such gambling palaces could cost upwards of $10 billion to build, Fitch Ratings Incorporated used its examination to up this figure to as high as $15 billion. GGRAsia reported that the inquiry moreover cited current uncertainties over expected capital expenditure ratio and financing requirements as added factors aggravating the ‘ten-year problem.

Reportedly read the examination from Fitch Ratings…

“Stakeholders we talked to were confident that there would be some workarounds to these issues – eg local government indemnifying against a closure that is not a fault of the operator – but these issues remain the biggest obstacle at this time.”

Yield prospects:

Fitch’s inquiry determined that it was ‘doable but uncertain’ that the coming Japanese integrated casino resorts would be able to achieve annual returns on investment of ten percent or better. It additionally purportedly questioned the logic of the proposed 30% tax rate, which would be among the highest in all of Asia, but still predicted that the completed venues could record annual gross gaming revenues of approximately $10 billion.

The examination from Fitch reportedly read…

“Besides the higher gaming tax rate that we were well aware of before our trip, operators will have to deal with high development costs and bureaucratic red tape such as know-your-customer and other reporting requirements. We estimate $10 billion in [construction] costs before the trip. We now think the proper cost range is $10 billion to $15 billion after accounting for supporting infrastructure investment and meeting the stipulated amenities such as the cultural requirements.”