Macao's VIP junket risk spooks investors
Updated: 2011-02-08 07:20
(HK Edition)
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Macao's booming gaming enclave, heavily reliant on the high-rolling VIP sector, is likely to lose favor with some investors on concern over liquidity, which sparked a sell-off in shares of Wynn Macau Ltd on Monday.
Wynn Macau, a unit of gambling tycoon Steve Wynn's Wynn Resorts Ltd, fell 5.9 percent to a one-month low of HK$19.38 at the close of trading Monday, its biggest decline since mid-November as disappointing revenue from rival Las Vegas Sands Corp prompted profit-taking on recent stellar gains.
While some analysts are sticking to their revenue forecasts for now for major operators such as Wynn Macau in the Chinese territory - now the world's biggest gaming market - they said any pullout in VIP money posed a downside risk.
"People are kinds of worried about VIP at the moment. It has always been a swing factor to overall gaming revenue growth because it accounts for 75 percent of the total (Macao) market," said Credit Suisse analyst Gabriel Chan in Hong Kong.
VIP gaming revenue in the former Portuguese colony is dependent on casino junket operators, middlemen who bring wealthy clients to Macao's gambling halls, a playground for Asia's rich with its high-stakes tables and endless rows of slot machines.
These middlemen ensure the flow of capital by extending credit to gamblers, often millions of dollars on a visit, and are responsible for collecting the loans.
Las Vegas Sands Corp, run by billionaire Sheldon Adelson, posted sharply higher quarterly revenue of $1.09 billion last week but the figure fell short of estimates. Its Hong Kong-listed unit is Sands China Ltd, which fell 2.42 percent to HK$18.52 in Monday trading.
Analysts said investors were focusing on high-roller VIP liquidity after being disappointed by Sands.
With Wynn Macau's heavy exposure to the VIP market and its shares up by more than double over the past year, investors are likely to react to any negative news by cashing in gains.
The risk of a junket run, or a potential default against a casino operator was weighing on investors. Because of the lack of investment opportunities in China, wealthy mainlanders were parking large sums of money in the junkets in Macao.
"The concern becomes that, while in most countries only banks can take deposits, junkets are taking deposits now. So could it be that instead of a bank run, you have a junket run?" Chan said.
Links between licensed junket operators and organized crime have been an open secret in Macao's glitzy neon hub.
While many law-abiding junkets are active, experts say the industry is highly susceptible to criminal influence given the extra-legal functions and opaque environment in which they work.
Analysts are unlikely to scale back their estimates for the time being for Wynn's earnings later this month, citing strong fundamentals as Macao's top premium casino brand.
Royal Bank of Scotland analyst Philip Tulk in Hong Kong said he would only consider revising estimates for Wynn if there was a significant VIP liquidity problem.
"The Sands result just reminds people that while Macao has grown its revenue very strongly over the last several quarters, it is shifting towards VIP and VIP is the volatile side of the business," Tulk said.
Reuters
(HK Edition 02/08/2011 page3)