Ho listing plan raises SFC fears of laundering
The $15 billion initial public offering of Stanley Ho Hung-sun's Sociedade de Jogos de Macau (SJM) has run into concerns over money laundering within the Securities and Futures Commission, sources have said.
To allay the fears of the regulator, a team of money laundering experts would oversee the finances of the 16 casinos that the company operated, a source said.
The problem comes with the structure of the industry. Most high-rolling VIP rooms in Macau, which have traditionally been the backbone of the gaming industry, are not run by the casinos but rented out to operators who pay a percentage of their gaming profits.
These operators then reel in gamblers through travel agents that run gaming trips, known as 'junkets'. They are paid from any winnings and often advance gamblers cash.
Relationships between the casinos, VIP room operators and junket runners are typically informal. 'It's the junket operators and credit issues ... where the problems lie,' said a money laundering expert.
The SFC, SJM, and Deutsche Bank, hired to arrange the share sale, declined to comment.
The regulatory issues are the latest in a string of troubles that have hit the proposed share offering.
Mr Ho last month said the offering would be pushed back to next month after his sister, Winnie Ho Yuen-ki, who has a long-running dispute with him over the company, filed suit in Macau and Hong Kong challenging the sale.
Sources said the share sale would not move forward without 'legal clarity'.
SJM's finances are weakening under stiffening competition. SJM's gaming revenue fell a greater than expected 2.3 per cent last year to 34.4 billion patacas in the first full year of foreign and local competition.
VIP gaming revenue in Macau as a whole fell 3.1 per cent but the gaming market grew 11.3 per cent, according to government data for the period. SJM's net income rose 36 per cent to 5.56 billion patacas.
Citigroup and BOCI expect SJM's share of Macau's gaming market to decline to 25 per cent by the end of 2009 from 75 per cent now. Citigroup expects its gaming revenue to halve to 16 billion patacas over the same period.
Sociedade de Turismo e Diversoes de Macau (STDM) had its 40-year gaming monopoly broken in 2002 when Las Vegas casino magnates Steve Wynn and Sheldon Adelson received licences from the government to build and operate casinos in Macau.
STDM has an 80 per cent stake in SJM, created after Mr Ho lost the exclusive right to run casinos, while Mr Ho holds 10 per cent. Ms Ho owns 7.3 per cent of STDM.