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Macau casinos cash in again as China’s luxury sector rebounds

Macau casinos cash in again as China’s luxury sector rebounds

By: Ben Bland in Macau

Despite recovery, gambling executives are wary of further crackdown from Beijing

Casino executives in Macau are confident that the slowdown of recent years is behind them amid a broad recovery in luxury goods demand in China.

The only part of China where casinos are legal, Macau was hit hard by President Xi Jinping’s corruption crackdown and austerity drive, which scared away many of the high-rollers who had helped revenues surge in previous years.

Macau is the world’s largest gambling centre but revenues have declined sharply since 2014 — when China’s corruption crackdown first began to hit the enclave. The six casino operators in Macau have seen their combined market capitalisation fall 46 per cent since early 2014, wiping out $97.7bn of shareholder value.

Gross gaming revenue — a key industry measure — started to grow again on an annualised basis in August after more than two years, amid reduced fears about the anti-graft campaign and the opening of a number of multibillion-dollar casino resorts.

“The numbers are up, the scaffolding is down, the energy is up and we’re on the road to good times,” says Geoff Freeman, chief executive of the American Gaming Association, the lobby group for US casino groups including Macau operators Las Vegas Sands, MGM Resorts International and Wynn Resorts.

Fitch, the credit rating agency, expects gross gaming revenue to grow by 12 per cent this year to $31bn, after peaking at $45bn in 2013 and falling to $28bn last year.

Vitaly Umansky, an analyst at Bernstein, the equity research house, says that Macau’s performance has tracked the wider luxury sector in China, which is recovering amid a perception that the toughest days of Mr Xi’s anti-graft campaign are in the past.“

The anti-corruption campaign has seen a moderation in the last few months and there’s also an element of fatigue,” he says. “High net-worth individuals are sitting back and thinking that ‘If I haven’t been affected by now, then I’m probably OK’.”

A surge in real estate prices and an increase in the money supply in China have also left wealthy individuals and the middlemen who provide them with credit in Macau — known as junkets — with more access to the funds they need for gambling.

But executives are concerned that if the VIP sector rebounds too strongly, the Chinese government will put pressure on the Macau authorities to tighten regulation further.

“The central government has made it clear to us that they don’t want to see gaming revenue shooting up,” says Francis Lui, deputy chairman of Galaxy Entertainment, another of the six casino operators in Macau. “They want diversification.

”Over the last couple of years, the government of Macau, which is a semi-autonomous Chinese territory, has clamped down on the junkets and instituted a number of measures designed to discourage people using the city as a conduit to get their money out of China.

Earlier this month, the Macau government proposed further restricting the use of ATM cards by Chinese consumers, in order to curb capital outflows from the mainland and reduce the risks of money laundering.

Macau — and the casino operators — have been under pressure from Beijing to show that they are transforming the city into a broader-based tourist destination such as Las Vegas, rather than just a den for high stakes gamblers.

This plan has been helped by the opening of a slew of large resorts over the last couple of years, including the Wynn Palace, Galaxy’s Phase Two and Melco International’s Studio City.

Improvements to Macau’s poor infrastructure, such as a new ferry terminal and light rail system, will also help attract more mass market gamblers and their families when they are completed over the next year, analysts say.

Macau attracted more than 30m tourists last year, most of them from mainland China and Hong Kong. The number of visitors increased by a little more than 5 per cent year on year in the first quarter this year.

Paulo Martins Chan, director of the Gaming Inspection and Co-Ordination Bureau, Macau’s gambling regulator, says that the industry is “in a good balance today,” with nearly half of the casino revenues coming from mass market players rather than VIPs backed by the junkets.

He says that his agency was continuing an audit of all the junket operators designed to weed out those with questionable records, leaving those that are “financially healthy and capable”.

Charlie Choi, chairman of the Macau Gaming Information Association, a lobby group for junkets, says that the industry had “learnt lessons over the past two years” when several junket groups collapsed amid the slowdown because of unsustainable bad debts. 

“The survivors have improved their credit management and are being much more careful,” he says.

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