Gaming investor hires insolvency firm to recover HK$1.9b in loans
Neil Gough and Naomi Rovnick
Shares in Macau gambling junket investor Amax Holdings touched a 10-year low yesterday after the company issued a profit warning and said it had hired a corporate restructuring and insolvency expert.
Amax, controlled by long-time Macau VIP room operator Ng Man-sun, said it hired Horwath Corporate Advisory to assist with 'assessing the recoverability' of HK$1.9 billion that Amax raised in a 2007 share placement and later indirectly loaned to 10 VIP junket agents in Macau. Those junket agents used the funds to extend credit to high-rollers at Melco Crown Entertainment's Altira casino hotel (formerly the Crown Macau). The influx of easy credit following the Amax deal briefly made the Altira the busiest casino in the world, in terms of gambling volumes, over the course of several months in early 2008. But the initial booming volumes at the Altira proved to be a bubble, which deflated once the junket agents and their punters had burned through the HK$1.9 billion dispersed by Amax's Macau unit, AMA International.
Amax, which also has a 49 per cent stake in Ng's Greek Mythology casino, said it now expected to book a 'significant loss' for the fiscal year to March. Five directors and the company secretary have resigned since April. The firm was scheduled to report final results today, but has delayed doing so.
The company said it retained Horwath to help assess its chances of recovering the HK$1.9 billion. Amax had already written down the value of that loan by about 70 per cent as of September last year to HK$605 million, but it said yesterday the revised value of the debt would be 'significantly lower' due partly to 'the financial difficulties of AMA and its failure to recover the credit granted to the [junket agent] collaborators'.
One hedge fund manager, who focuses on the gaming sector, said: 'Amax has historically carried the risk of weak credit controls. It has also provided very little information on which junket operators it lent money to, and how it expects to be repaid by them.'
AMA's partnership with the 10 unnamed junket agents was effectively killed off last year by the Macau government's move to cap commissions in the VIP segment, which accounts for around 70 per cent of all casino revenue in the city.
AMA had originally won the loyalty of the agents by paying them a commission of 1.35 per cent of their VIP chip sales - an extraordinarily high rate when the deal was first struck in late 2007.
But in December the government capped commissions at 1.25 per cent. The junkets responded by severing contracts and sidestepping AMA to deal directly with Melco Crown, which also took over the function of issuing them credit to pass on to their gamblers, according to Amax's previous stock exchange filings.
Analysts said Amax's difficulty in recovering the HK$1.9 billion was unusual, as junkets specialise in debt collection. 'Shareholders should naturally be very interested in who the money went to and why Amax has written its value down by so much,' said one insolvency expert.