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Macau gaming officials seek to 'improve transparency' of junket operations

23 Sep 2015

By Howard Stutz
Macau gaming authorities plan to revise laws that regulate the high-end junket operators, which have come under intense scrutiny by the mainland Chinese government as part of an overall crackdown on corruption.

In a statement Tuesday, Macau's Gaming Inspection and Coordination Bureau said it would "seek to improve transparency" in the junket industry and ensure all personnel are suitable.

Junket operators have long been part of the Macau gaming structure. They market the casinos to high-end players, often utilizing private gaming rooms separate from the mass market gaming floors.

The move comes as junket operators — some of which are alleged to be influenced by Chinese crime triads — have been ensnared in the Chinese government crackdown. The anti-graft campaign has contributed to Macau's 15 straight months of declining gaming revenue. High-end baccarat has nose-dived in Macau, and some gamblers are staying away until the crackdown ends.

Macau's regulatory agency plans to introduce new requirements on the funds and shareholder structure of junkets and tighter rules on accounting and auditing. Macau officials may require the junkets make public information such as the list of directors, shareholders and key employees.

J.P. Morgan gaming analyst Joe Greff told investors that action by Macau was in response to recent rising public concern triggered by the recent incident of a junket employee's theft of player funds.

The Dore Group, which brings gamblers to Wynn Macau, was the victim of employee embezzlement and may have lost as much as much $258 million. The theft did not involve funds associated with Wynn Macau.

Greff said the stricter requirements "would limit the junkets' ability to source capital to a degree, which could lead to a tighter liquidity environment." Greff said the move would likely continue the ongoing consolidation among junkets.

"This development adds additional uncertainty within (the high-end market) and its impact is impossible for us is to quantify," Greff said.

Also Tuesday, Fitch Ratings revised its Macau 2015 revenue growth forecast to a 33% to 34% decline, down from its previous forecast of a 29% decline. Macau's gaming revenues are currently down 36.5% through August.

Fitch gaming analyst Alex Bumazhny said openings of new casinos in Macau over the next 15 months, starting with Melco-Crown's Macau Studio City project at the end of October, won't help grow the gaming market.

"The downward revision forecast takes into account Fitch's reduced expectations for the new capacity to drive meaningful incremental growth," Bumazhny said.

Wynn Resorts Ltd. plans to open the $4.1 billion Wynn Palace in March, followed by the openings in the second half of the year of Las Vegas Sands Corp.'s $2.7 billion The Parisian Macao and MGM Resorts International's $2.9 billion MGM Cotai.

Bumazhny said the Macau government has "not shown leniency in its guidance to limit additional allocation of table games," which will hurt the new resorts.

"Fitch believes the risks operators face related to the new properties cannibalizing the existing properties and table allocations being less generous than what the operators have requested are partially mitigated by the operators' ability to shed development-related cost as their respective projects open," Bumazhny said.

Macau, the world's largest gaming market, collected a record $45.2 billion in gaming revenue in 2013, which fell 2.6% in 2014.

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