Author | Zhai Yaoyuan Liu Pei
Saipan casino tycoon Ji Xiaobo's family business was again investigated by the US FBI.
On the morning of November 8, Bohua Pacific (01076.HK), the sole operator of Saipan casino, issued an announcement stating that an office of the group in Saipan was assisting in the investigation according to the requirements of local law enforcement agencies. It also provided relevant information and documents as required by law enforcement agencies. On the same day, Bohua Pacific's share price fell by 18%.
According to foreign media Calvinayre, on November 7, the Bohua Pacific office was searched by the FBI (Federal Bureau of Investigation). The outside world does not know the specific reason for the investigation. Bloomberg reported that in the past, Imperial Pacific had been repeatedly searched by the FBI for illegal employment of workers and bribery from the governor of Saipan.
Bohua Pacific is run by a pair of mother and son Cui Lijie and Ji Xiaobo from the northeast. Their early casino business was mainly in Macau. In 2014, they listed on the backdoor and landed in the Hong Kong capital market and became the main controlling shareholder of Bohua Pacific. In the past, Macau’s business was affected by the mainland’s anti-corruption efforts, and profits fell sharply; Ji Xiaobo’s mother and son turned their attention to Saipan in the United States, and in August of that year, they photographed the only casino license in Saipan and obtained the beautiful scenery in Saipan. 40 years of casino management rights on the island.
However, this casino, which focuses on operating VIP customers, began to enter the second half after experiencing three years of skyrocketing revenue. In 2018, the revenue of VIP customers fell sharply, resulting in a loss of nearly HK$3 billion for Imperial Pacific.
Asian VIP customers contributed 90% of revenue
After Saipan obtained the casino license, Imperial Pacific has grown rapidly for three consecutive years.
Especially in July 2017, the "Bohua Palace·Saipan" resort built by Ji Xiaobo's mother and son with a building area of 140,000 square meters was officially put into operation, greatly increasing the gaming capacity. Imperial Pacific's table games and slot machines have almost doubled. In the same year, the revenue of Imperial Pacific also increased by 75.7%, reaching HK$13.16 billion.
With the expansion of casino capacity, it attracts more high-rollers. The income contribution of Imperial Pacific is mainly from the "rich people" from China, Hong Kong, Macau, and South Korea. More than 90% (in fact, 96.7%) of imperial Pacific's revenue of 13.16 billion Hong Kong dollars in 2017 came from these wealthy customers. In 2018, this proportion declined slightly, reaching 89%.
disclosed in the annual report for the first half of 2019 that customers from China accounted for 46.8%, followed by customers from South Korea, accounting for 41.6%.
However, this VIP model has been questioned. Forbes reported that this model of mainly operating VIP customers is not sustainable, and the shelf life of VIP players is 2-3 years.
Bohua Pacific’s performance began to decline sharply in 2018. The company's financial report shows that in 2018, there were 28 VIP gaming tables in UBM Saipan, with a turnover of up to 126.2 billion yuan. In 2017, the turnover of 23 VIP gambling tables in UBM Saipan was as high as 385.8 billion yuan.
Bohua Pacific's final loss in 2018 was as high as HK$3 billion. Bohua Pacific said that the hurricane caused a decline in tourists and the tightening of credit funds led to a decline in revenue.
However, it is worth noting that the credit lending model provided by Bohua Pacific for the above VIPs is also facing a huge risk of fund recovery.
Bohua Pacific introduced that the credit period they give customers is 30 days. If the receivables are overdue and if the customer still has not repaid the debt within 6 months of the planned end date, the company will issue a request to the customer to repay the debt. Payment notice.
As of June 30, 2019, the accounts receivable of Bohua Pacific exceeded HKD 9.16 billion, of which accounts receivable over 6 months reached HKD 8.9 billion.
This brings potential bad debt risks. On June 30, 2019, the largest debtor’s accounts receivable provision for impairment reached HK$1.09 billion, while the top ten debtors’ provision for impairment was HK$2.48 billion. Impairment lossCompared with the amount of losses accrued at the end of 2018, there has been a significant increase.
The second-phase resort project stagnated
After Bohua Pacific obtained the 40-year casino operation right on Saipan, it obtained the operating license for the exclusive development of entertainment and resort projects on the island. According to the requirements, Imperial Pacific expects to invest and introduce a total of no less than US$3.1 billion to build the "Imperial Palace Saipan" locally.
However, after the completion of the first phase of the Imperial Palace·Saipan project, the second phase of the construction of a resort hotel by the Imperial Pacific was difficult, and the project schedule was repeatedly delayed.
In September last year, the company announced that due to the lack of construction workers, it would postpone the completion of the "Bohua Saipan Resort Hotel" in February 2021. Previously, due to the suspected use of undocumented labor, some projects of the project ceased operations, resulting in construction delays.
The labor problem is also very serious, and it once triggered the US Department of Labor to force the payment of mental compensation to workers and impose a fine of 200,000 US dollars. In June this year, foreign media reported that Bohua Pacific was sued by construction workers for forced labor and refused to pay compensation. Seven former construction workers said that Bohua Pacific abuses and threatened Chinese workers. Among them, the two workers who lost part of their fingers and severely burned their legs during the construction process did not receive compensation.
The above-mentioned problems have also caused the time point of the Saipan project to be delayed repeatedly.
And the huge financing of the project seems to be not going well. Bloomberg previously reported that the company's management is seeking long-term financing for the construction of the Bohua Saipan resort project. However, on July 9 this year, the company’s announcement revealed that Inventive Star, wholly-owned by Ji Xiaobo’s mother and Executive Director Cui Lijie of Bohua Pacific, sold 14 billion shares of the company to Champion Capital Holdings Group Co., Ltd., and all the proceeds will be lent to Bohua Pacific Saipan Development and Construction.
As of June 30, 2019, the group has invested more than 6.4 billion Hong Kong dollars in the construction of resort hotels.
Liu Pei is a senior author at Qingliu Studio, based in Beijing. Zhai Yaoyuan is a research assistant at Qingliu Studio.
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