Government promises transparency
Macau’s Gaming Inspection and Coordination Bureau, or DICJ may revise the rules and licensing requirements for junket promoters, who make their money by arranging credit lines, travel and accommodations for VIPs coming to the city’s casinos.
The gaming regulator said it wants to ensure that junket operators and their employees have been thoroughly vetted and approved before they handle millions of dollars of high-roller money. The push for more accountability may have been exacerbated by the recent high-profile theft in Dore Entertainment’s junket operation at Wynn Macau.
Dore contends it was victimized by former cage manager Mimi Chow who “allegedly used her power to conduct unauthorized actions without the company’s knowledge.” Most reports say the suspect stole around HKD330 million (US$42.6 million). Others suggest the losses may amount to more than $250 million. The speculation has caused dozens of junket investors to clamor to withdraw their funds. As explained by GGRAsia, junket operators in Macau typically raise capital for their rolling-chip programs by offering private investors above-market interest rates for their deposits. That capital is then used to extend credit to VIP players.
The DICJ says credit providers must be “duly constituted and authorized” in order to accept deposits and other funds from the public. “Illegally accepting deposits is a criminal activity,” the bureau warned.
The regulator could tighten its oversight of lower-level junket staff; implement stricter rules on accounting and auditing; and publish more information about the junkets, including the names of administrators, shareholders, key employees and collaborators. “Any shareholder or administrator that has not been subject of the suitability check by the government will not be legally recognized,” the DICJ added.
Secretary for Economy and Finance Lionel Leong Vai Tac warned VIP gaming promoters “to know which acts violate the law. We will be working on setting up a set of internal guidelines that we hope the sector can abide by” for more effective regulation and “more transparent disclosure of the VIP rooms or promoter firms’ shareholder structure.”
The Macau Business Daily reports that VIP gamblers accounted for more than 70 percent of gaming revenues at the start of 2014, a figure that has been since cut in half. A number of junket businesses have closed, consolidated their operations and in some cases, moved to competing jurisdictions. Analysts say the number of junket tables has fallen by some 20 percent since January.
Bloomberg News reports that a move by junket operators to reduce lines of credit to high rollers caused Macau casino shares to close lower in Hong Kong. One day after the news, gross gaming revenue dropped 19 percent to 493 million patacas (US$62 million) a day, or 18 percent below the quarterly average, according to Deutsche Bank AG analyst Karen Tang. The cut in lending “prompted others to withdraw deposits from various junkets,” Tang wrote. Bloomberg’s Macau Gaming Index declined more than 5 percent to a three-year low.
J.P. Morgan gaming analyst Joe Greff said stricter requirements for junket runners “would limit the junkets’ ability to source capital to a degree, which could lead to a tighter liquidity environment” for “additional uncertainty” within the high-end market,” and an impact that is “impossible for us is to quantify.”
The Las Vegas Review-Journal reports that Fitch Ratings has revised its Macau 2015 revenue growth forecast to a decline of 33 percent to 34 percent, down from a previous forecast of 29 percent. And new developments on the Cotai Strip are not expected to help, said Fitch gaming analyst Alex Bumazhny. “The downward revision forecast takes into account Fitch’s reduced expectations for the new capacity to drive meaningful incremental growth,” Bumazhny said. Wynn Resorts will open its $4.1 billion Wynn Palace in March 2016, followed in the second half by the Las Vegas Sands Corp.’s $2.7 billion Parisian and MGM Resorts’ $2.9 billion MGM Cotai.
According to Forbes, those kinds of developments would have made sense in the “hypergrowth” that lasted from 2009 through the first half of 2014, but may be unsustainable in the current environment. That five-year boom period “came from a bubble that’s unlikely to repeat,” according to the publication, citing Wells Fargo Securities senior analyst Cameron McKnight. McKnight suggests the current contraction may be an inevitable correction, and the slump will continue indefinitely before the industry truly stabilizes. McKnight said his sources believe the days of “easy money” are over, and that includes not just the gaming industry but the overall Chinese economy.
However, McKnight remains optimistic about the long-term prospects for Macau and its chief industry—the operative word being “long-term.” He foresees a further 16 percent decline before the turnaround begins, or revenues of about US$25 billion for the year, down 43 percent from 2014, but just above the numbers for 2010.
Even so, reported GGRAsia, Macau’s mass gaming revenue could grow by about 4 percent in the third quarter for “the first sequential increase since the first quarter 2014,” said UBS Securities Asia Ltd. That’s due to a more relaxed visa policy and the opening of those new hotel rooms, which has led to “a higher headcount, helping the base mass segment.”
In an interview with China Money Podcast, Leon Liao, gaming analyst at investment bank Jefferies & Co., said the current environment will spur consolidation among the many junket operators.
“If the market is good,” said Liao, “small players can be successful. But if it’s bad like this, no one can afford this kind of turnover. This can’t continue for long or we’re going to lose many of these smaller companies.”
