High Stakes Casino Game

Posted: June 4, 2010 in Uncategorized

China’s Hot Money for Casinos
Extracts of Intelligent Macau report                           4th June 2010 


High Stakes game

Macau   …. the really, really big winners at the moment are the guys who are holding between 40 and 57.5 per cent of revenues passing through their cages: Jimei (unlisted as yet), Neptune, Dore, Sun City and all the rest of the, ahem, intermediaries who make Macau such an important cog in the rising economic machine of China. Loyalty counts; patriotism pays.

…. The question is whether the current liquidity conditions can be maintained. At the moment, here is what we see happening: 1) Regulatory uncertainty in China — 2) Money needing a safe haven — 3) Money ending up offshore, but with nowhere to go — 4) Junkets offering double-digit returns on investment compared to less than 1 per cent at the local bank and risky Hong Kong stock and property markets — 5) Surging credit lines fueling surging rolling-chip volumes — 6) Outsized returns for the junkets — 7) Repeat Steps 3 to 6.

…. Yet we would add a note of caution to investors’ expectations as well. The ebitda gains will obviously not be as stellar as the GGR gains, as most of this rise is being driven by junkets. And we would also watch for signs of credit recklessness among the concessionaires, tempting as it is to attempt to keep up with the Joneses. To be sure, when the liquidity morphine wears off, the reality of the debt that will have to be written off might just be more painful a hangover to bear than is currently foreseeable.

…. Singapore will continue to weigh on both attention and resources. That said, if the concessionaire (Sands) can hit the new stretch target set yesterday by its CEO – who told the SEC in a filing that he’s expecting ebitda of US$1-1.2 billion this year.

* First thing first, do the investors have enough confidence in Marina Bay Sands performance? (Professional Ground’s gauge is ebitda of about USD500m – USD700m for this year).
* The intention of Beijing Central Government should be watched closely. The 2nd half of Macau gaming turnover may be less optimistic if Chinese government intervenes.
* Quite clearly Singapore government won’t allow the same way hot money’s flow into Macau to happen in the integrated resort casinos… So will vip gaming business gives the IR casinos high yet sustainable turnover?
*  Can the IR’s “pseudo VIP players” (disguised by junkets) sustain long enough due to high credit exposure or, when the authority finally intervenes?



Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s