Casino industry responds to Chinese crackdown
In a December report, Wells Fargo investment analyst said second phase of the Galaxy Macau project will not open until May 2015, two months after its originally scheduled opening date in March.
Cameron McKnight of the New York investment group said in a note that any delay in the opening could reflect what GGRAsia called “less than optimal conditions” for a new Macau casino opening.
But Michael Mecca, president and chief operating officer of Galaxy Entertainment, insists McKnight got it wrong. “It’s simply not correct,” Mecca told GGRAsia last month. “We have always been very consistent about our dates, and Galaxy has always been amazingly consistent about being on time and on budget.”
The market in Macau has seen a marked contraction due to a crackdown on corruption and money laundering under Chinese President Xi Jinping. Time magazine reported in December that Macau’s six biggest casino operators saw revenues decline by about $75 billion in 2014. Even so, a number of new casinos are planned for the 12-square-mile former Portuguese colony, which generates more gaming revenue than Las Vegas.
In his December note, McKnight wrote that a delay in the opening “likely signals that the environment in Macau (both policy/macro settings and gaming revenues) is not healthy enough to support an opening at the moment. In any case, we believe the eventual opening of Galaxy Macau Phase 2A will be an important catalyst for the market and will likely indicate that the forward outlook for Macau has inflected.”
Xi, who visited Macau last month to mark the 1999 handover by Portugal, is reportedly intent on diversifying the island’s economy. In the meantime, the resort industry plan to add more than 2,000 rooms in the next three years to appeal to new visitors, reported Voice of America. Visitors to Macau have risen from about 9 million in 2000 to almost 30 million in 2013.
Most hail from China, but Xi’s anti-corruption efforts have had a dampening effect on high rollers who used to flock to Macau from the mainland. According to VOA, the campaign, coupled with a slowdown in the Chinese economy, led Macau’s monthly gross gaming revenue to fall by one-fifth, to $3 billion in November. That’s the lowest level since 2012.
“We do think that China, when you look at the anti-corruption policy that China is pushing out – basically they are institutionalizing it. So for us that means there is going to be pressure,” said Nomura Securities analyst Louise Cheung. “Basically, people stay away because of concerns over that policy, so they will probably never come back. So there’s a big uncertainty which would pressure high rollers.”
Credit Suisse AG analyst Kenneth Fong speculated last May that Phase 2 of the $2.5 billion Galaxy project could be on track for a “mid-2015” opening for the casino and an “early 2015” opening for the shopping mall and hotel.
