Suncity entry into Philippine gaming raises questions from regulators

MANILA, Philippines — A multi-layered agreement that would allow Hong Kong-based Suncity Group Holdings, touted as Asia’s largest junket operator, to enter the Philippine casino market has raised questions from regulators, analysts and local casino players themselves.

In a filing in Hong Kong last week, Hong Kong-listed Suncity Group Holdings Ltd. said it is planning to participate in the operations of the integrated casino project of Andrew Tan’s Westside City Resorts World by acquiring a majority stake in Philippine-listed entity Suntrust Home Developers Inc.

Suntrust, in turn, would have a co-development agreement with another firm called Westside City Resorts World Inc.

Under the agreement, Westside and Travellers International Hotel Group Inc. will lease the casino and hotel site to Suntrust for development. Westside will also appoint Suntrust as the sole and exclusive operator and manager of the main hotel casino, Suncity Group said in its Hong Kong filing.

Travellers International is the joint venture between Alliance Global Group Inc. and Hong Kong-listed Genting Hong Kong Ltd., which also runs the Resorts World Manila casino resort.

Suncity Group, through its subsidiary Fortune Noble Ltd., acquired an aggregate of 1.15 billion Suntrust shares, representing a 51 percent stake in the company for a price of P1.1 billion, Suncity also said in the disclosure.

The shares were acquired from sellers Townsquare Development Inc. and First Centro. Inc.

In a separate disclosure, Suntrust told the Philippine Stock Exchange (PSE) that it is expanding its capital base as it shifts its focus to tourism development.

As a result, Suncity through Fortune Noble will own and maintain a majority controlling interest in Suntrust, while Tan-owned Megaworld will have at least 34 percent stake.

The transaction has raised questions from the local market as well as from regulators.

Sought for comment, Nicky Franco, head of research for Abacus Securities Corp., said the deal was quite surprising. “First it is very surprising that Suntrust has gotten the right to build and operate the casino because this comes less than a month after the delisting of Resorts World Manila. Recall that the fairness opinion attached to the delisting application clearly states that there are no current plans to develop Westside. We questioned that claim at the time and we believe that this deal with Suncity proves our point,” Franco said in a commentary sent to The STAR.

Tender offer

According to Franco, there should be a tender offer again for minority shareholders of Suntrust.

“We don’t know yet what the price will be, but according to the amended IRR of the Securities Regulation Code, the bidder is compelled to offer the highest price paid by him for such shares during the past six months. The Philippine Stock Exchange therefore must ask for a breakdown of the share purchase on October 28 in order to determine the correct offer price which could be anywhere between P1.42 and P1.85 (range for the day),” Franco said.

As a result of the transaction, Suntrust went on a voluntary trading halt from October 29 to October 30.

Sought for comment about Suntrust’s multilayered transaction in the face of Travellers’ delisting, PSE chief operating officer Roel Refran said the local bourse would have to study the matter.

The Securities and Exchange Commission (SEC), the corporate regulator, for its part said it is generally looking into the fairness of the delisting process and may soon be issuing new rules governing it.

“Together with the PSE, we are looking at the fairness of the delisting process. The PSE has some proposals that we are evaluating,” SEC Commissioner Ephyro Amatong told The STAR.

PSE sources said one such proposal is assigning a third-party entity that would provide a fairness opinion the valuation of a shares of a company that intends to delist from the exchange. This would in contrast to the current practice where the companies themselves hire the third party entities.

Concerns on delisting

The Shareholders Association of the Philippines (SharePHIL), a prominent group of minority shareholders in the country, has urged the PSE to tighten rules governing the delisting of companies.

SharePHIL president Francis Lim told The STAR the PSE and SEC should help protect shareholders by amending rules on delisting.

“The PSE may want to consider amending its rules to require stockholders’ approval in addition to mere majority board approval. It may also want to consider requiring a super majority vote both at the board and stockholders level,” said Lim who was also former president of the PSE.

According to Lim, in other countries,  67 percent or 75 percent stockholders’ approval is required.

The PSE should also address the tender offer price which is a contentious issue.

“The PSE may also want to consider a minimum tender offer price, which is at the core of the issue. There are a number of models in the region that the PSE can look at and it may choose what it thinks is best for our stock market,” Lim also said.

Casino license

An existing casino operator at the Philippine Amusement and Gaming Corp.’s 100-hectare Entertainment City in Paranaque also raised the question regarding Suncity’s casino license.

“What is their license to operator in the Entertainment City?” said a source.

Arsenio Balisacan, chairman of the Philippine Competition Commission (PCC), the government’s anti-trust body, said the transaction would also need the clearance from the PCC if the final amount meets the transaction threshold for compulsory notifications of mergers and acquisitions.

Last March, the PCC raised the thresholds to P5.6 billion for the Size of Person (SoP) from P5 billion and to P2.2 billion from P2 billion for the Size of Transaction (SoT).

Suntrust has confirmed the multi-layered transaction and acquisition of Suncity, but has yet to clarify the questions raised from stakeholders.