Casino investors wading into the unknown - Unfinished regulations dampen project financing prospects

Published: Friday | December 13, 2013 Comments 0
Devon Rowe (left), financial secretary, Ministry of Finance & Planning. - File
Devon Rowe (left), financial secretary, Ministry of Finance & Planning. - File
Keith Russell, land developer and CEO of Amaterra Jamaica Limited.
Keith Russell, land developer and CEO of Amaterra Jamaica Limited.
The Amaterra development planned for Duncan's Bay, Trelawny. - File
The Amaterra development planned for Duncan's Bay, Trelawny. - File

 Avia Collinder, Business Reporter

Amaterra Jamaica says it will not pay the remainder of the application fee for its casino resort project unless it gets assurances from the Ministry of Finance that it will be allowed time to finalise financing for its mega-resort.

Amterra has proposed a US$1.45-billion development.

The company said Wednesday that responses from the ministry for clarifications on the new casino regulations was provided 10 days ahead of the bid deadline too late to receive commitments from its financiers.

Amaterrra is one of four companies to make a bid for development of casino resorts. The others are: Harmony Cove Limited, owned 49 per cent by the State, through Harmonisation Limited, and 51 per cent by Tavistock Group; Jamaica Casino Royale Limited, whose development is proposed for Drax Hall Estate; and Robert Trotta's Celebration Jamaica Limited.

Non-refundable fee

A US$150,000 non-refundable fee was payable with the bids, but only Harmony Cove presented a cheque at the bid opening last Friday. Celebration said its fee was paid from 2008; Drax Hall requested time to December 15 to pay up; while Amaterra paid just 15 per cent of the fee.

The finance ministry is still weighing whether bids with outstanding fees would qualify.

"The matter of whether or not bids for which application fees are not fully paid are admissible is under review," said a ministry representative on Wednesday, who spoke on condition of anonymity because the bid process is confidential.

Amaterra has said it won't pay the full fee without seeing the relevant regulations, whereas the ministry, as a condition of the bid process, has said the regulations won't be released until the fee is paid.

The ministry representative said a response to Amaterra has been drafted and there is a possibility of a meeting to resolve various issues.

A consultant attached to the Amaterra bid said one of the big concerns was that the Government itself had a "horse in the race in the form of Harmony Cove".

"The question arises as to what kind of firewall is being established to ensure that there is no co-mingling of processes, so that pure private-sector investors can have a fair shake. That is the real issue," she said.

The Ministry of Finance, under the Integrated Resort Development (IRD) project, will issue three approved IRDs to three investors. Each approved IRD will create a geographic boundary for the casino resort.

However, while this is meant to reassure investors that no rival casino resort can be developed in its buffer zone, it creates a different dilemma for Amaterra, whose 850-acre development is located in the same parish as Harmony Cove's 2,200-acre complex Trelawny.

Its unclear whether their very location in the same parish would be a disqualifier for one, or whether the projects had sufficient distance between then one is at Duncan's Bay and the other at Harmony Hall, with 3.5 miles between the communities so as not to encroach on each other's buffer zone.

Celebration is in St James and has no geographic rival, and similarly for Casino Royale, which is in St Ann. Casino Royale, with lead investor Phillip Reynolds, is costed at US$1.5 billion. Land partner Richard Salm said US$500 million has been committed, while the rest of the financing is being finalised.

No current information on the Celebration project was available. However, its 2008 proposal was announced as a 2,000-room, US$1.8-billion development to be spread across 65 acres of oceanfront land, adjacent to Trotta's incomplete Palmyra Resort & Spa development, which was placed in receivership by its bankers in the summer of 2011.

The Casino Gaming Act was passed into law in 2010, but the finance ministry is still churning out regulations for the sector.

"All the regulations for the Casino Gaming Act are not complete but two sets, including that which relates to the request for proposal, have already been gazetted," said the representative.

"Others are being drafted."

However, regulations relating to the IRD were completed and promulgated in November 2012, the person said.

Ministry under fire

The finance ministry has come under fire for the roll-out of the law, not from the religious community, which had fought the introduction of casinos for decades, but potential investors who thought the process was messy.

Spanish-owned Palladium Hotels, for example, had began the process of doubling its room count in Jamaica but later decided not to bid, saying the IRD process was flawed. Its proposal also did not appear fit into the IRD requirements for 2,000 new rooms.

Palladium Country Manager Dimitris Kosvogiannis said it was unreasonable to expect investors to acquire land as a precondition for a project that may or may not be approved, and even if approved, still has to qualify separately for the casino licence.

Kosvogiannis, too, has said the process favoured Harmony Cove.

Keith Russell, CEO of Amaterra Jamaica, said Wednesday that he has been pursuing financing primarily from overseas funders, complemented by limited local participation.

But: "There has been a challenge in finalising agreements due to the slow and late response" of the Ministry of Finance to questions by Amaterra and financiers in relation to the request for proposals.

The RFP was issued in June for bids by September 30. The bid deadline was later pushed back to November 30.

"We first wrote the ministry in July and got no response. In August, I met with potential investors in Oklahoma and came back with more questions. We wrote them again and got no response," said Russell.

"We attended the briefing in September hoping to get the responses there, but none were forthcoming. We needed the information in order to get a full-scale analysis and feasibility study," Russell explained on Wednesday.

Investors concerned

Amaterra's investors raised questions - to which Russell said they only received responses a few days ahead of the November 30 bid deadline - in relation to missing draft regulations; the number of casinos allowed on the property covered by the licence; the issue of geographical exclusivity ; the duration of licences and other matters.

The late response, he said, was one of the reasons for Amaterra holding back 85 per cent of the application fee.

"We made the application under duress; we have all the money," said Russell.

"We want to ensure that the things which were not answered effectively, that consideration be given that we did not have the information required. How can you do a feasibility plan without the regulations?" he demanded.

Russell's partner in the venture is American Charles 'Chip' Murphy III, who is also chief financial officer of Amaterra.

The company was established in July 2002 to design, develop, manage and market an integrated tourism and residential enclave at Duncan's Bay over a 15-year period.

The mixed-use development comprises five ocean-side hotels with 2,300 rooms; 2,000 residential lots; commercial space; entertainment and dining complex; large convention centre; casino and attractions, and an 18-hole championship golf course.

The project consultant for Amaterra said the company expects to meet with the Ministry to discuss elements of its bid, which itself describes as 'deficient'. The RFP terms allow a four-month window for reviews.

"Although we submitted a proposal, there are elements which are in our estimation deficient because we did not have the information needed to answer adequately," said the consultant.

"We want to sit with them and ask if within the four months we could provide supplementary information. The fee would then be paid. The regulations would put us in a much better position in discussions with our partners."

She said Amaterra has a 'potential' partner, which is already in the business of hotel and casino operations, lined up to run its outfit.

"They are anxious to come here. It is not that they are not eager, but business is business," she said.

Amaterra has proposed that its 15-year timeline be incorporated into its IRD bid. However, Financial Secretary Devon Rowe in a response posted on the Ministry's website, said that while timelines may be negotiated with the minister, it was already stated in the legislation that 1,000 rooms must be completed to qualify for approved IRD status, and that the rooms had to be ready for occupancy before the casino licence would be granted.

The financial secretary also responded to the Amaterra's proposal of an application fee paid in two stages - US$50,000 for receipt of the draft regulations and the remainder with the formal application essentially nixing the suggestion. Rowe said non-compliant entities might choose not to finalise their application after obtaining the regulations, thereby robbing the government of the remaining fee.

On the matter of geographical exclusivity, Rowe said this would also be the subject of negotiation, but that currently three parishes were targeted for geographical exclusivity. The parishes were not named.

Russell said his project was "shovel ready" and could commence construction by mid-2014 once all hurdles are cleared.

"Amaterra is now taking the steps necessary to complete negotiations with respect to the financing for the development," he said.


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