Gambling credit fears hit Macau casino chips

PUBLISHED : Saturday, 01 October, 2011, 12:00am
UPDATED : Saturday, 01 October, 2011, 12:00am


All bets are off after Macau casino stocks plummeted as much as 17 per cent yesterday, losing a combined HK$65 billion in market value on fears that credit for high-rolling gamblers is drying up.

The Hong Kong-traded shares of Macau's six licensed casino operators are now firmly in the grip of a bear market, having plunged by 25 to 50 per cent in value from their peaks less than two months ago.

'Friday's sell-down was pure panic,' CLSA Asia-Pacific gaming and consumer analyst Aaron Fischer said.

'Investors are concerned that junkets are cutting lending to players due to a perceived rise in defaults on gaming debts. But so far we haven't seen confirmation this is the case in Macau,' he said.

Junket agents play a crucial role in the world's biggest casino market, bringing VIP baccarat players to Macau from the mainland, issuing them credit, and collecting their gambling debts in exchange for a commission.

Macau's credit-driven VIP segment accounts for more than 70 per cent of total casino revenue, which rose 47 per cent in the first eight months of the year to 117.94 billion patacas. Most junket agents in Macau operate on a two-week debt-collection cycle, so any rise in bad gaming debts would be quickly offset by a pullback in new credit issuance. That would lead to an immediate drop in casino revenue, which analysts say has yet to occur.

As of Wednesday, Macau's gaming revenues were on pace for 40 to 45 per cent growth for last month, Deutsche Bank gaming analysts said in a research report. Thursday's typhoon may have knocked five percentage points off the month's growth rate, Union Gaming Research analysts wrote in a report.

Investors also appeared to have been spooked yesterday by a report that South Korean casino operator Grand Korea Leisure has stopped granting credit to high rollers, who mainly hail from China.

Grand Korea, controlled by the Korea Tourism Organisation, operates three 'Seven Luck' casinos, two in Seoul and one in Busan. The company maintains a marketing office in Macau and has advertised extensively in both Macau and Hong Kong.

'We believe its [halting] of giving credit is a temporary measure amid growing bad debt risks associated with surging Chinese customers,' Shinyoung Securities analysts wrote yesterday in a research note.

Wynn Macau led the drop in shares of casino operators yesterday, plunging 16.9 per cent to close at HK$18.78, or 33.4 per cent below its August 2 closing high of HK$28.20 per share.

Rival Sands China's shares fell 14.1 per cent, shedding HK$24.6 billion in market value to close at HK$18.64 apiece. SJM Holdings was the best performer with an 8.7 per cent drop to HK$15.44, while Galaxy Entertainment fell 13.3 per cent and MGM China fell 11.8 per cent.

Melco International Development, whose Nasdaq-listed casino joint venture Melco Crown Entertainment is pursuing a Hong Kong share offering, saw its shares fall 12.98 per cent to close at HK$5.23 apiece.

Melco International's shares have fallen 50.6 per cent since peaking at HK$10.58 on August 2, two days before Melco Crown announced plans for the Hong Kong listing.


Macau's casino revenue in August, in patacas. The figure was up 57 per cent for a record monthly total, according to gaming authorities