Global Private Equity Fund Bain Capital Acquires Parent Company Stake
Failure to Meet Loan Agreement... Likely Due to Missing Performance Benchmarks
Attention on Completion of Four-Phase Construction by 2046
"No Changes Expected in Planned Project Implementation"
The ambitions of the American company Mohegan, which boldly entered the Korean market dreaming of creating the largest integrated resort in Northeast Asia, have come to an end after just over a year. This is due to the management rights of Inspire Entertainment Resort (Inspire), established on Yeongjong Island in Incheon with Mohegan's investment, being transferred to a global private equity fund.
Although it secured a new license for a foreigner-only casino in Korea for the first time in 19 years and gained attention for its large-scale performance facilities and media art, the borrowed funds used to build initial infrastructure and management results falling short of expectations became obstacles. It remains to be seen whether the plan to complete the integrated resort by investing up to 6 trillion won by 2046 will proceed as scheduled.
According to industry sources on the 18th, 100% of the shares of MGE Korea Limited, the parent company of Inspire, were transferred from Mohegan to Bain Capital, a global private equity fund, through the exercise of acquisition rights. Previously, Mohegan’s subsidiary had borrowed $275 million (about 390 billion won) in 2021 using shares of the Korean corporation MGE Korea as collateral but failed to meet the agreement, resulting in the transfer of management rights. The resort’s name will also change from Mohegan Inspire Entertainment Resort to Inspire Entertainment Resort.
"Lack of Understanding of the Korean Market... Reckless Investment is Poison"
Mohegan had already stated in its year-end financial report last year that "there is no guarantee that the $275 million in secured loans and other debts from Bain Capital can be refinanced, which could lead to default," adding that "this could pose significant risks to investors." Both Inspire and Bain Capital have remained silent regarding the loan agreements between the two companies, but the market believes the cause was Inspire’s failure to meet performance benchmarks within a set period.
For the fiscal year 2024 (October 1, 2023 ? September 30, 2024), Inspire posted consolidated sales of 219 billion won but recorded an operating loss of 156.4 billion won. This was due to operating expenses of 375.4 billion won spent on early-stage workforce expansion and infrastructure development. Labor costs alone, including salaries, welfare benefits, and severance pay, amounted to 122.6 billion won. Interest expenses also surged from 1.6 billion won the previous year to 96.7 billion won, resulting in a net loss of 265.4 billion won.
The burden of repaying borrowed funds remains heavy. Previously, in September 2021, Inspire raised about 1 trillion won from 67 financial institutions, including Kookmin Bank. The interest rates ranged from 5.4% to 7.66%, with maturity due on December 1. However, as of the end of September last year, cash and cash equivalents stood at only 138.6 billion won.
Inspire is a leisure facility established by Mohegan, which operates seven integrated resorts in North America, choosing Korea as its first Asian market entry. After being selected in March 2016 for the integrated resort public offering plan promoted by the Ministry of Culture, Sports and Tourism, it completed the first phase of construction with an investment of $1.6 billion (about 2 trillion won), including foreign investment. The resort features a hotel with 1,275 rooms across three towers, a performance arena with 15,000 seats, state-of-the-art MICE (Meetings, Incentives, Conferences, and Exhibitions) facilities, and directly operated restaurants, officially opening in March last year. Prior to this, a foreigner-only casino was also opened. This was the first new license for a foreigner-only casino in Korea in 19 years since 2005 and the first approval for foreign investors.
An industry insider analyzed, "While Mohegan has accumulated sufficient know-how and achieved great success in the integrated resort business in North America, it appears that a lack of understanding of the Korean market led to reckless financial management in an attempt to gain a competitive edge, which increased the burden."
Private Equity Fund Holds the Key... Industry Watches Future Strategy Closely
Since most private equity funds pursue strategies of restructuring the revenue structure of companies they control to increase corporate value and recover investments, the industry is paying close attention to whether Bain Capital will implement a similar strategy in operating Inspire. An industry source predicted, "The main revenue source, the foreigner-only casino, requires licensing and is a scarce business, so it is possible that they will try to increase the company’s value through this and seek new investors."
The American online gaming site Casino.org also expressed skepticism, stating, "Bain Capital has not disclosed long-term plans, including how long they intend to operate Inspire or whether they will bring in new partners to manage the business."
A Ministry of Culture, Sports and Tourism official, who oversees casino licensing and integrated resort establishment and management, explained, "The foreigner-only casino operated by Inspire is licensed to the Korean corporation, and the transfer of management rights is related to the parent company, so it is unrelated. As long as there are no special violations in the casino business, there will be no operational changes." However, the official added, "Since there have been changes in the existing structure, the relevant ministry plans to monitor closely for any unusual matters."
The completion of the integrated resort, scheduled in four phases with a total project cost of 6 trillion won by 2046, is also a key issue. Bain Capital has stated that there will be no changes to the existing planned project. The company said, "There will be no changes to employees, customers, or the day-to-day resort operations," adding, "We plan to work closely with Inspire’s current management to ensure smooth business operations and gradually introduce necessary measures to further strengthen Inspire’s position in the market." It is also known that they are considering bringing in strategic partners to improve operational efficiency and competitiveness of the resort and casino.
Meanwhile, Bain Capital, headquartered in Boston, USA, was established in 1984 and managed assets worth $185 billion (about 250 trillion won) as of last year. In the Korean market, it supports global expansion by managing numerous companies such as Carver Korea, Hugel, Schwans, and Hanwha Advanced Materials. It has experience investing in gaming and entertainment sectors including Gamblit Gaming, Scientific Games, GameLogic, Someplay, Zynga, and Twin River Casino, and has collaborated with companies operating luxury resort businesses.
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