Casino economy teeters on credit pyramid

The number seven did not turn out to be lucky for Lai King-man.

Lai was a former Hong Kong policeman turned triad who became involved in Macau's VIP gambling junket syndicates, and seven was the number of pieces that his body had been chopped into when it was found decaying in a Macau flat last month.

The 60-year-old, nicknamed 'Policeman', was last seen gambling on the high-stakes tables at the Venetian Macao on September 6 when he was pulled away by a group of thugs. Tellingly, the subsequent dispute at a Taipa restaurant that led to his gruesome death was reportedly over a 20-year-old, HK$2 million gambling debt to an underground casino in Shenzhen.

This appears to have been an isolated and extreme case, but the root problem that led to Lai's death is an increasingly common one in the world's largest gaming market.

Macau's unprecedented casino boom has to a large extent been built on piles of debt and mountains of credit: drawn down by high rollers, underwritten by their junket agents and increasingly back-stopped by the casinos. But as the city's gaming industry enters its first downturn in a decade, this teetering pyramid of credit is wobbling from the foundation up.

Indeed, Macau's VIP gaming segment, which at 75 billion patacas in the 12 months to September accounted for 69 per cent of all casino revenue, now appears to be facing its own 'subprime crisis'.

Increased competition for business from high rollers and a potential cap on junket commissions 'caused looser lending by junkets who have had to compromise their usual 'know your customer' standards when determining who to extend credit to, and how much', said David Green, the director of PricewaterhouseCoopers' gaming practice in Macau.