Pinnacle Entertainment stock falls as problems mount with Vietnam casino project
The stock of Las Vegas-based casino operator Pinnacle Entertainment Inc. slumped today after the company disclosed problems and potential delays with a Vietnamese gaming resort in which it is investing.
Pinnacle stock was off 6.8 percent, at $11.70, in mid-day trading.
On Friday, Pinnacle said in a regulatory filing that it could lose its entire $109 million investment in a beachfront resort complex called Ho Tram Strip.
The project includes components managed by various parties, including Pinnacle and MGM Resorts International. Pinnacle owns 26 percent of the British Columbia company behind the project, Asian Coast Development (Canada) Ltd.
In its Oct. 24 third quarter earnings report, Pinnacle said ACDL continues to make significant progress with the first phase of the MGM Grand Ho Tram project in Vietnam and the property remains on track to open by the end of first quarter 2013. But in a filing with the Securities and Exchange Commission on Friday, Pinnacle disclosed "it is uncertain whether the first phase of the first resort will be completed."
That's because the Ho Tram Project has defaulted under a contract with a provincial government establishing construction deadlines for the beachfront resort 80 miles from Ho Chi Minh City, causing a group of Vietnamese banks to suspend funding of the resort under a $175 million credit facility while issues with the construction deadline and the project's gaming license are worked out.
"As a result of the suspension of funding, ACDL/HTP currently does not have sufficient cash resources to complete the first phase of its Ho Tram resort project," Pinnacle said. "Recently, construction activity has increased substantially, and without the lenders' resumption of funding under the credit facility or the infusion of additional funding from alternative sources on an expedited basis, construction at the project site will likely cease in the near term."
A request for comment from Pinnacle was not immediately returned.
Analysts at Union Gaming Group in Las Vegas on Oct. 8 had downgraded Pinnacle stock based on the problems in Vietnam and today they reiterated their sell rating for the stock, saying the situation could cause Pinnacle to invest even more money in the resort even as it faces the loss of its existing investment.
Problems with the development include uncertainties that the local power grid can provide electricity at reasonable cost within the required timeframe, concerns about locals being barred from gambling and the regulatory situation there making it unattractive for significant VIP business, Union Gaming analysts said.
They noted that besides the construction financing issue, ACDL has yet to obtain a $35 million working capital loan, that it has been determined the company will need more than $35 million and that "the magnitude of additional working capital is currently unclear."
"Pinnacle further disclosed that delays in establishing regulatory protocols could delay gaming operations at Ho Tram," Union Gaming said in a report today.