HONG KONG—Firms backed by Macau gambling mogul Lawrence Ho agreed to buy a controlling stake in the first phase of what could become a US$630 million casino-resort project in Russia, the latest country hoping to attract China's prized high rollers.
The move by an experienced Macau casino operator to build in Russia is a boost to the country's gambling industry, which is rarely on the radar of gambling executives and bank analysts because of concerns over corruption and a lack of clarity surrounding the country's regulatory structure for casinos.
Mr. Ho's Summit Ascent Holdings Ltd. said Wednesday it agreed to buy a 46% stake in an initial US$130 million phase of the casino project on the outskirts of Vladivostok. Melco International Development Ltd., which also is run by Mr. Ho, said it would take a 5% stake.
Two Russian businessmen who are primarily involved in the construction business and have no casino experience will own the remaining 49% of the venture. The men, Oleg Drozdov and Aleksey Simanchuk, couldn't be reached for comment.
Mr. Ho and his Russian associates also signed a memorandum of understanding to be equal partners in a second phase of the project, estimated to cost US$500 million.
Mr. Ho's companies cited Russia's low tax rate, proximity to northeast China, "cordial diplomatic relationship" with Beijing and Vladivostok's tourism potential as reasons for the investment.
The project aims to attract Chinese high rollers, who have transformed Macau into the world's largest gambling market. The Chinese territory's US$38 billion in gambling revenue last year was six times that of the Las Vegas Strip.
Shares in Melco Crown Entertainment Ltd., a joint venture backed by Mr. Ho and Australia's James Packer fell around 4% after news of the Vladivostok casino-resort project surfaced last week. David Bain, a casino analyst at Sterne Agee, said in a report that the drop was driven by speculation that Melco Crown would participate in the project. Melco International, which owns about a third of Melco Crown, has fallen roughly 8% following last week's news.
The first phase of the planned casino resort in Primorye—a vast eastern region bordering China and Korea—is scheduled to open in September of next year. The resort would be one of the first legal casinos to open in Russia, after the country in 2009 banned casino gambling beyond four special zones.
The developers plan to build around 120 hotel rooms and install 65 gambling tables and 800 slot machines. The second phase could include 170 gambling tables, 500 slot machines, 500 hotel rooms and entertainment and conference facilities.
The deal comes as Mr. Ho and other casino developers look for investment opportunities beyond Macau as the territory's rapid revenue growth has begun to slow.
Annual gambling revenue in Primorye is forecast to reach as much as US$5.2 billion in a decade, according to a report prepared last year by U.S.-based Gaming Market Advisors for the regional government.
OJSC Nash Dom Primorye, the state-owned firm that last year invited companies to present their ideas for the new entertainment zone, remains in talks with Mr. Ho's firms and other potential developers, said Deputy General Director Alexander Chkheidze.
NagaCorp Ltd., which operates a casino in Cambodia, and Global Gaming Asset Management, which is involved in casino projects in the Philippines and the Bahamas and is run by a group of former senior Las Vegas Sands Corp. executives, remain in the mix, as does a Russian casino operator, Mr. Chkheidze said.
Nash Dom Primorye, which is investing in roads and other infrastructure for the entertainment zone, will be the casino companies' landlord. They will have the option to buy the land after they have completed construction, he said.
GGAM Chief Executive William Weidner said his firm has been negotiating a memorandum of understanding with Nash Dom Primorye and that it is interviewing partners.
NagaCorp didn't return requests for comment.
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