GGRAsia – Tighter Macau junket rules bode little: Bernstein

Tighter Macau junket rules bode little: Bernstein

Apr 19, 2016 Newsdesk Latest News, Macau, Top of the deck

A suggested set of new capital requirements for the Macau junket sector – an idea currently under discussion between industry representatives and the Macau government – is likely to have no material impact on the city’s gaming industry, says brokerage Sanford C. Bernstein Ltd in Hong Kong.

Last week the head of the largest association of Macau VIP gaming promoters – the Association of Gaming and Entertainment Promoters – told GGRAsia the group was in talks with the local gaming regulator about the possibility of increasing by 100 times the amount of capital deposit that any newly-registered VIP promoters must lodge with the authorities. If the idea were adopted, it would raise the required deposit to MOP10 million (US$1.3 million), from the current MOP100,000 level set in 2004, junket industry representative Kwok Chi Chung said.

The proposal also suggests new junkets should have at least one Macau resident as a shareholder.

Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac, has confirmed the discussions with the junket sector. Mr Leong noted however that the government did not want to rush a decision on the matter.

But Sanford Bernstein analysts Vitaly Umansky, Simon Zhang and Clifford Kurz wrote in a Monday note: “We believe this change would have minimal incremental impact to the junket industry, which has been consolidating in the past 24 months… the remaining active ones tend to be better capitalised.”

In January, Macau’s casino regulator – the Gaming Inspection and Coordination Bureau – said the number of registered junkets had fallen by 23 percent over a 12-month period.

One factor putting pressure on junkets is the ongoing slowdown in high roller play. Gross gaming revenue in VIP baccarat – a segment heavily reliant in Macau on junket operators – fell by 40 percent year-on-year in 2015, and 19 percent year-on-year in the first quarter this year, according to data from the city’s casino regulator.

Room closures

The softening casino business environment in Macau – described by investment analysts as partly due to China’s ongoing anti-corruption campaign – has led several junkets to cut back their operations in the city. Many junkets shut down VIP rooms during 2015. Some have started to explore opportunities in other regional markets, including the Philippines, Cambodia, Vietnam and even Australia.

The Sanford Bernstein team stated in its Monday note: “This proposal [for tighter junket capital requirements], if implemented as proposed, would not apply to the existing 141 licensed junkets, but only to new entrants. The proposal is mild relative to our expected tightening of junket regulation this year.”

The brokerage added: “The risk remains that further junket regulation may be forthcoming in 2016.”

Paulo Martins Chan, a former assistant public prosecutor-general in Macau who became the director of the gaming regulator late last year, said in a speech on December 1 that the local gaming industry – including the junket segment – needed “an improved legal framework”.

Junket association head Mr Kwok last week also told GGRAsia that his group had suggested to the city’s casino regulator the creation of a blacklist that the association members could use to identify people with bad debts relating to VIP gambling credit issued in Macau.

“If the new proposal is implemented, it would be positive to junkets’ management of bad debts,” stated Sanford Bernstein.

The chief executive of Macau-based casino operator SJM Holdings Ltd, Ambrose So Shu Fai, has already said the proposal for tighter junket capital requirements would be positive for the city’s gaming industry, Portuguese-language newspaper Jornal Tribuna de Macau reported. Mr So added that a debtor blacklist could also help the junket sector in better managing its operations.