The Iao Kun Group Holding Company, the embattled junket operator in Macau and the Far East, is jettisoning hopes of a VIP rebound for the region and is instead recasting itself as a Chinese technology company, the group announced Tuesday.
IKGH said that it intends to purchase a 51 percent stake in a Chinese holding company that owns Guangzhou LiNiu Network Technology Co – a software company that is developing an electronic trading platform tailored to China’s agriculture sector.
The dramatic shift in business strategy comes on the heels of a brutal 2016 in which the company realized massive losses in quarterly revenue and rolling chip turnover, and was forced to close four of its five VIP gaming rooms in Macau as part of a strategic restructuring initiative.
“Over the last few months, we have conducted an extensive review of our operations and our business strategy in order to right-size IKGH and find a path where we believe we can create long-term value for our shareholders,” said Mr. Lam Man Pou, chairman of IKGH.
“After recently completing the review, we concluded that we did not see a path forward toward rebuilding our VIP gaming portfolio,” he emphasized. “While we will continue to participate in the promotion of our VIP gaming room in Macau, we have no further plans to expand our gaming operations to additional VIP rooms.”
IKGH and other Far East junket operators have been hit hard by struggles in Macau – including lower VIP baccarat play, a cooling Chinese economy and a corruption crackdown that left the Chinese territory’s gaming industry in a two-year freefall.
The company had been desperately seeking a means of diversification and announced last summer that it had acquired a casino property and gaming license in Korea, but this development was not enough to override shareholder concerns. IKGH was issued a warning notice from the NASDAQ as its shares failed to maintain a minimum bid price of $1.00.
While gross gaming revenues in Macau stabilized in the latter half of 2016, this wasn’t enough to convince IKGH that a long-term business opportunity still exists.
“While conducting the review, we identified several opportunities to diversify from the gaming sector which we believed were attractive from a value-add standpoint,” said Lam. “After appropriate due diligence, we made the determination to acquire a majority interest in LiNiu Network and will be focusing our near to mid-term efforts on successfully launching its trading platform and rapidly scaling the business.”
Lam also highlighted that the transaction – expected to close in the first quarter of 2017 – provides a work-around to its current cash shortage.
“Importantly, the acquisition requires no upfront cash payment and firmly aligns our interests with that of LiNiu Network as the vast majority of their consideration is dependent upon them achieving consistently increasing after-tax profit targets over the next five years,” he said.
The LiNiu Network is building a B2C electronic trading platform intended to create new business and investment for some 900 million people that work in China’s agriculture sector and is expected to launch in the first half of 2017.
“We are excited to be partnering with IKGH and playing a key role in their transition into the technology industry,” said Wang Shun Yang, director of LiNiu Network.. “We see a need to create a more efficient way for individual farmers and Chinese agricultural suppliers to conduct business with their customers, and we believe the LiNiu Network platform is uniquely positioned to fill the current gap.”
