The Business Times, 22 May 04

Willing to bet big in S'pore
by Vikram Khanna

After establishing itself in the United States and entering the British and Australian markets, MGM-Mirage is keen to invest in Asia, where, up to now, it has maintained only marketing offices.

The gaming giant's chairman and CEO, Terrence Lanni, indicated that the company's top executives have already met with Thai Prime Minister Thaksin Shinawatra, who is interested in attracting investments in the gaming industry to the kingdom. MGM-Mirage was also one of the bidders for a licence in Macau (which it did not get).

But now it views Singapore with particular interest. 'When we read about Singapore opening up (to the casino business), we sent letters to the appropriate people in government there saying 'if and when such a potential transaction transpires, we would be most interested in participating',' says Mr Lanni. 'Singapore is a perfect location for our particular industry,' he adds, 'because of the fact that there are high levels of integrity in the government. A highly regulated situation is most important to us, because if we didn't have that in one jurisdiction, it could impact negatively on our licences in other jurisdictions. One of the most important parts of our business is to maintain those licences. Anything that would put them in jeopardy would be unacceptable.'

Licences for US gaming companies are inter-dependent on a global basis. If a company breaches gaming regulations (or if these are improperly designed or enforced) in one jurisdiction anywhere in the world, its licences at home can be endangered.

Thus, thorough regulations, enforced with high levels of integrity is 'the number one consideration' for MGM-Mirage in deciding to make an investment, says Mr Lanni. 'That says to our shareholders, to our board of directors, to all the jurisdictions where we operate: 'It's all right for us to go to Singapore because they have a good regulatory system in place'.'

The second most important consideration in Singapore, according to Mr Lanni, would be the tax regime - particularly the level of gaming taxes. Here, he points to a simple trade-off: the lower the taxes, the greater the number of likely players, the higher the capital investments and the better and more attractive the casino projects. 'So if there are going to be, say, three licences issued on Sentosa island, that would make for a high rate of tax,' he points out. 'If you really want large foreign investments, you would let the number of licences be determined by the market, with companies permitted to decide on what level of investments to make. Then you could also have a lower tax rate, because you'll have multiple licences and multiple facilities.'

Casino industry experts in Las Vegas told BT that moderate levels of gaming tax - say, below 10 per cent - would enable companies like MGM-Mirage to commit to building US$1 billion-plus resorts, instead of the smaller facilities that exist in places like London, Monte Carlo and Macau.

Mr Lanni points out, however, that entry restrictions for patrons would also be an issue that his company would consider when making an investment. 'I respect the right of a country or a city state like Singapore to determine who can and cannot enter. I would tell you, though, that with the resorts that could be developed, depending on the tax regime, to deny the rights to local people to enjoy them would be like building Disneyland in Singapore and saying locals can't go there.'

Mr Lanni says that if it is permitted to enter Singapore's gaming industry, MGM-Mirage would consider doing joint ventures with local partners - as it has done in the UK and some states of the US. 'In areas such as the Far East, which are far away from home, it would be desirable to have local partners who are familiar with the market, the customs, and who have the relationships with the construction companies,' he says. 'But it's not a requirement. A local partner would have to bring value added.'

MGM-Mirage would also be looking for local investor participation, he says. 'If we were in Singapore, we would be interested in floating that particular subsidiary on the local exchange to allow local investors to have a piece of the action - and also as a means of raising funds.' 'These are very expensive properties to build and to maintain. Our capital expenditures each year are staggering; we go to the markets often, including the bond markets. And we have a significant involvement with Wall Street investment bankers. We would certainly look forward to using the opportunities in Singapore to raise capital there as well.'