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Japanese lenders bet on casinos

Wakako Sato

By Wakako Sato

TOKYO, June 5 (LPC) - Japan's megabanks are hoping to hit the jackpot on up to ¥1.8trn (US$17bn) of project financings from the country's first integrated resort casinos, for which senior bank debt is expected to play a pivotal role in funding plans.

The government has authorised three IR licences with total project costs of up to ¥3trn and is expected to receive bids next year from major cities such as Osaka, Tokyo and Yokohama as well as Nagasaki and Wakayama.

The megabanks – Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp – expect to play a leading funding role for the IR projects, the bulk of which is likely to be through long-tenor project financings that tap into the flush liquidity in the country’s banking system.

"IR projects in other markets are often financed by limited recourse bank debt and corporate or high-yield bonds," said Yusuke Abe, partner at Clifford Chance. "However, Japan enjoys strong bank liquidity with attractive pricing and does not have, as yet, a deep high-yield bond market. Thus, we expect that senior bank debt will play a vital role in Japanese IR financing".

The three IR projects, which are expected to open from 2026, could require as much as ¥1.5trn–¥1.8trn in debt funding, which would eclipse financing in Macau and Singapore – the cities that have taken the lead in developing IRs in Asia.

Since ending the previous monopoly and awarding its first three casino licences in 2002, Macau has overtaken Las Vegas as the world's biggest gaming market by revenue. US gaming giants such as MGM Resorts International, Las Vegas Sands and Wynn Resorts are among the IR operators in the former Portuguese colony.

The three US groups, among others, have raised multi-billion-dollar loans and bonds to fund the spectacular growth. Wynn was the first to tap the Asian loan markets with a US$397m-equivalent PF in August 2004. Since then the tally of loans for Macau’s IR sector has skyrocketed to US$54.25bn, according to Refinitiv LPC data.

Sands China, which operates the Venetian Macao, home to the world's biggest casino, sold US$1.5bn of US dollar bonds on Tuesday, split between a US$800m 3.8% January 2026 and a US$700m 4.3% 10-year, the first bond issue from the sector since the coronavirus outbreak began.

Singapore's two IRs – Marina Bay Sands and Resorts World Sentosa – have also generated US$43.38bn in loans since first raising debt in 2006-07. Last August, Marina Bay Sands raised S$8bn (US$5.86bn) from a new money and amendment-and-extension exercise that was a runaway success with 30 lenders joining in general syndication.


Any debt financing for the Japanese IRs would whet the appetite of lenders hungry for yield in a low interest rate environment.

Some Japanese banks have a track record in the sector, having lent to Macau and Singapore IRs. However, the quantum of debt for the Japanese IRs could be constrained given the greater risks the projects pose compared with the typical PF deals from other sectors in Japan.

The expected debt funding for the long-awaited IR projects represents around 50%–60% of the estimated costs. It means sponsors would still have to fork out significant equity contributions, much higher than typical PF deals in Japan. For instance, debt funding for domestic renewable energy projects can account for up to 85% of the costs.

Some gaming giants have already baulked at the high costs expected in Japan.

Las Vegas Sands ended its plans for an IR in Japan last month after having pulled out from bidding for a project in Osaka in 2019. Caesars Entertainment and Wynn Resorts have also withdrawn from casino projects in Japan.

Nonetheless, other gaming companies remain committed. MGM has teamed up with Japanese leasing and financial services group Orix to bid for an IR in Osaka, while Hong Kong-based Melco Resorts & Entertainment and Galaxy Entertainment are in the fray for the Yokohama IR.

"IR is a new business for Japan. While Japanese companies will no doubt play a key role in IR projects, we still believe that the expertise and extensive experience of international IR operators which have been built up over the years is extremely important for the success of new IR projects in Japan," Clifford Chance's Abe said.


Japan’s IRs come with additional challenges, including a short tenor for the IR concession, mandatory background checks for financiers and the coronavirus pandemic.

The initial validity of IR licences will be 10 years with renewals required every five years. Some bankers feel this is too short for sponsors to recoup the initial costs in the time remaining after construction is completed.

For instance, Macau's first batch of licences awarded in 2002 were valid for 20 years. In April 2019, Singapore extended the exclusivity period for both its IRs from an original 2017 expiry date to the end of 2030.

Background checks on financiers pose another hurdle for lenders. To address public concerns around links between gaming and organised crime, the Japan Casino Regulatory Commission is expected to scrutinise executives involved in financing and operating casinos, potentially demanding access to personal bank statements, loans and assets, as well as criminal records, education, family history and military records.

"Background checks on lenders are a unique feature in Japan's IRs, which could interfere with syndication. Some international and domestic investors with smaller-sized tickets may get cold feet because of this," said Kentaro Soh, director of the power and infrastructure project finance department at MUFG.

Some also believe Japanese regional banks would be more conservative towards the gaming sector. And while Covid-19 has not affected the timeline for bids for Japan's IRs, the impact of the virus elsewhere could raise flags.

In the past three months SJM Holdings, MGM China and Sands China have all sought waivers on financial covenants, with the latter two winning consent from their lenders for waivers until the second quarter of 2021.

(Reporting By Wakako Sato; editing by Prakash Chakravarti and Steve Garton)