Macau to bolster casino oversight ahead of licence renewals

[HONG KONG] Macau regulators are strengthening their oversight of the almost US$30 billion casino industry as they plan to release details next year of the renewal process for operators including Las Vegas Sands Corp and Wynn Resorts Ltd.

The local government is reviewing gaming laws to ensure casinos are following through on non-gaming commitments. Beginning in January, it also plans to tighten standards for licensing junket operators who bring high-rollers to the enclave.

The moves come as business in the world's biggest gaming hub is booming, with VIP gamblers helping to drive a rebound that saw casino revenue climb to a three-year high in October.

"The government will review and strengthen the gaming rules," Macau chief executive Fernando Chui said in his annual policy address on Tuesday.

"The government will also regulate junket operations, promote responsible gaming and boost the Macau casino industry's competitiveness."

Though Macau's economy is supported substantially by the casino industry, the territory's leaders have been trying to increase revenue that's not directly tied to gambling.

Their effort followed China's anti-corruption crackdown in 2014 that sent gaming receipts into a spiral for more than two years. On Tuesday, the enclave's leaders reiterated calls for operators to expand offerings to appeal to tourists.

"Clearly there is a focus on non-gaming on the part of the government, but I think the operators were going to get there anyway," Grant Govertsen, an analyst with Macau-based Union Gaming Securities Asia Ltd, wrote in an email.

He noted that companies like Galaxy Entertainment Group Ltd and Las Vegas Sands Corp that have more non-gaming elements tend to have the largest share of the revenue market.

Current Macau concessions and sub-concessions are set to expire in March 2020 for SJM Holdings Ltd and MGM China Holdings Ltd, and in June 2022 for the remaining four: Sands China Ltd, Wynn Macau Ltd, Galaxy Entertainment and Melco Resorts & Entertainment Ltd.

GAMING REVENUE

Analysts forecast 2018 gaming revenue will climb to 291 billion patacas (S$49.5 billion), according to the median estimate in a survey compiled by Bloomberg. Macau's gaming revenue has grown 19 per cent to 220 billion patacas this year through October, fueled in large part by high rollers.

The Macau gaming regulator has conducted several reviews this year of junket promoters to examine their accounting methods and adherence to government requirements, said Paulo Chan, director of the Gaming Inspection & Coordination Bureau. That follows proposals last year to boost supervision and raise capital requirements.

"When the market gets better, more people are eager to come back and do business, but Macau regulators will be more cautious during the junket approval process," Mr Chan said in a briefing in the territory Tuesday.

HIGHER QUALITY

Stronger oversight may not be a bad thing, according to Bloomberg Intelligence analyst Margaret Huang, because it allows the larger junkets to target better-quality players from China.

"Operators would also strive to better compete in this market by delivering higher quality, luxury facilities and amenities to cater to this business segment," Ms Huang said.

MGM Resorts International's newest Macau casino won't have a space for junket operators initially but plans to "bring that online as quickly as we can," Grant Bowie, chief executive officer of MGM China, said earlier this month.

Macau is the only place in China that allows casinos, and tightened regulations also reflect Beijing's drive to stanch capital outflows, some of which make their way to the territory.

Across Macau this year, the government deployed ATM-machines with facial recognition software to verify identities and help monitor transactions for those using Chinese bank cards. As a result, the ATMs have seen a decrease in the number of withdrawals and transaction value, according to an Apple Daily report this week.

The ATM rules followed a ban last year that prohibits proxy betting by telephone aimed at curbing bets from gamblers in China.

Macau has also stepped up screening of visitors. More than 250 people have been banned from entering casinos this year due to illegal activities such as theft and improper use of phones, Mr Chan said.

CHINA'S ECONOMY

The regulations could pose a risk to the 15-month growth streak in gaming receipts, while any slowdown in the Chinese economy might also present a challenge. Data on Tuesday showed China's economic expansion dialed back a notch in October. Still, the world's second-largest economy is on track for the first full-year acceleration in seven years.

Analysts see Macau benefiting from increased integration with the mainland. Completion of infrastructure projects including a cross-bay bridge linking Hong Kong, Zhuhai and Macau are expected to draw more visitors.

The Bloomberg Intelligence index of Macau casino stocks declined 0.5 per cent Tuesday, retreating for a third day after touching a more than two-year high last week. MGM China Holdings dropped 1.7 per cent in Hong Kong trading, while Wynn Macau slipped 0.2 per cent.

The relationships between Macau casino operators and junkets has ebbed and flowed over the years. As the junket system has come under scrutiny from time to time for allegations of money laundering, casinos have cut back on their reliance on them. But they still play a major role in bringing high-end players to the region.

"The junket world is very stable," Ian Coughlan, president of Wynn's Macau unit, said on a conference call with investors last month.

"The growth is very measured and we're getting the benefit of it - having two properties that cater to the high-end of the market."

BLOOMBERG