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South Korea approved construction of its first foreign-owned casino resort as Asia’s fourth-largest economy seeks to emulate Macau and Singapore in attracting more tourism spending from China.

The gambling, hotel and shopping project, a joint venture between Las Vegas-based Caesars Entertainment Corp. (CZR) and Lippo Ltd. (226), a Hong Kong-listed property developer, will be near Incheon International Airport west of Seoul, South Korea’s tourism ministry said in a briefing today. The ministry granted preliminary approval for the first part of a project valued at as much as 2.3 trillion won ($2.2 billion).

The decision to allow foreign integrated resort operators to compete against South Korea’s 17 existing casinos comes after President Park Geun Hye pledged to bolster service industries to reduce the country’s dependence on exports. Chinese tourists make up more than a third of visitors to South Korea, where Japan’s Sega Sammy Holdings Inc. (6460) and casino operator Genting Singapore Plc (GENS) also seek licenses to build.

“Korea is the optimal location to draw Chinese bettors,” Song Hak Jun, a professor in the hotel and convention management department at Pai Chai University in Daejon, South Korea, said before today’s announcement. “Everyone’s competing to absorb China’s outbound tourist demand. Having casino resorts will initially bring explosive growth to Korea, too.”

Photographer: Jacob Kepler/Bloomberg

Shares Rally

Lippo soared 36 percent to a record close of HK$5.79 in Hong Kong trading, while the benchmark Hang Seng Index gained 0.5 percent.

Paradise Co. (034230), Korea’s biggest casino operator, gained 4.4 percent to 33,150 won as of the close in Seoul trading. The shares earlier gained as much as 14 percent to a record.

Grand Korea Leisure Co., a state-owned casino operator, gained 2 percent to 43,950 won, outperforming the benchmark Kospi Index’s 0.7 percent rise.

The Caesars-Lippo venture plans to spend 743.7 billion won in the first phase of the project by 2018 and a total of 2.3 trillion won eventually as it builds the casino, hotels, residential buildings, convention centers and shopping malls, the ministry said in the statement.

South Korea plans to draw 10 million Chinese visitors a year by 2020, compared with 4.3 million last year, an increase of 53 percent from 2012, according to data from Korea Tourism Organization. Chinese visitors made up 36 percent of foreign visitors to Korea in 2013, and accounted for 41 percent of visits to the country’s casinos in 2012, according to the latest official data.

Photographer: SeongJoon Cho/Bloomberg

Landscape Changer

All but one of South Korea’s 17 casinos are open only to foreigners. Their combined revenue was 2.46 trillion won in 2012, the latest available data show, and they attracted 5.4 million bettors. Revenue at foreigners-only casinos grew by an average of 15 percent a year for the five years through 2012, the data show.

The proposed casino at Incheon will only be open to foreigners, the tourism ministry said. The project may add more than 890 billion won in tourism income from new visitors and create more than 8,000 jobs during construction from 2014 and 2018, the ministry said.

“It’s going to change the landscape of Korean casinos because it’ll be the first integrated resort-style foreigners-only casino,” D.S. Kim, a Hong Kong-based analyst at BNP Paribas Securities Asia said by phone. “The existing casinos in Korea are like gambling dens which do not offer any non-gaming amenities such as spa, restaurants or entertainment shows. They simply cannot cater for large groups of visitors.”

2018 Olympics

The venture plans to open the Incheon resort in time for the 2018 Winter Olympics in Pyeongchang, South Korea, Caesars said in an e-mailed statement today.

Photographer: SeongJoon Cho/Bloomberg

Caesars, the largest owner of U.S. casinos, is entering the South Korean market after failing to secure a license in Macau, the only place in China where casinos are legal.

The Las Vegas-based casino operator’s net loss tripled to $1.76 billion in the fourth quarter as it reported higher write-downs, according a March 11 statement. The company, struggling to reduce debt as Americans cut back gambling spending, this month said it sold four casinos to an affiliate for $2.2 billion.

Caesars and rivals Las Vegas Sands Corp., Wynn Resorts Ltd., and Melco Crown Entertainment Ltd. (6883) have said they are interested in a gambling resort in Japan should the country legalize casinos. Japan’s government has said it is considering eliminating the casino ban as a way to boost tourism and stimulate economic growth.

Incheon Interest

Meanwhile Sega Sammy, the video game and pachinko machine company, and Paradise, are also seeking to spend 1.9 trillion won to build a hotel, foreigners-only casino and a shopping mall in Incheon. The companies plan to complete the first part of the project by 2017, Paradise said in October.

Genting Singapore, Southeast Asia’s largest casino operator by market value, said in February it will develop a $2.2 billion casino resort on South Korea’s Jeju island with Chinese property company Landing International Development Ltd.

“The approval of the Caesars-Lippo project will be a watershed to gauge the government’s will toward the casino industry,” Thomas Bae, a service industry analyst at Woori Investment & Securities Co. in Seoul, said before today’s announcement. “The casino industry has superb growth potential and if the regulatory hurdle is lowered, it would further bolster foreign investors’ appetite in the industry.”

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