The weekend arrest of a suspect identified by authorities as a 47-year-old businessman surnamed Chau and very widely reported to be Suncity Group CEO Alvin Chau will not only affect Suncity’s junket business but also negatively impact its listed arm, according to brokerage Bernstein.
In a Monday note outlining the possible fallout from the enforcement action, which saw a Mr Chau named as one of 11 people arrested over the weekend for alleged criminal association, illegal gambling and money laundering, Bernstein analysts suggested Suncity’s expansion into overseas casino operations was one of the key reasons authorities have moved against the company.
The arrest of the suspect came less than 48 hours after the Wenzhou Public Security Bureau in China’s Zhejiang province had issued a statement revealing it had been granted approval by the People’s Procuratorate of Wenzhou to issue an arrest warrant for Alvin Chau.
The Bureau accused Chau of “opening casinos in China” via the operation of cross-border gambling operations on behalf of Suncity Gaming Promotion Company Limited, alleging he had “set up an asset management company in Mainland China to provide services for gamblers to exchange assets for gambling chips, helped to collect gambling debts, assisted clients in cross-border capital exchange, and used underground banks to provide gamblers with funds settlement services.”
Bernstein’s Vitaly Umansky, Louis Li and Kelsey Zhu said in Monday’s note that the action against Suncity is likely not so much about the group’s Macau operations but its overseas casino and junket business, as well as alleged online gaming activities.
“The big sin that Chau committed was branching out into gambling activities overseas, much more so than activities in Macau casinos,” it said.
“The proliferation of overseas, lightly regulated, casinos in places like Vietnam, Philippines and Russia, among others, and the intense expansion of online gambling, targeting mainland Chinese customers, was the culprit.”
The brokerage said this could prove problematic for Suncity’s Hong Kong-listed entity, 1383, which leads the joint venture partnership that owns and operates Hoiana in Vietnam, is building a US$1 billion casino hotel project in Manila and holds a majority stake in Russia’s Tigre de Cristal via a controlling interest in Summit Ascent Holdings. Both Suncity Group and Summit Ascent were placed in a Trading Halt early Monday before trading resumed in the evening.
“Suncity’s publicly traded arm, Suncity Group Holdings Limited, does not house any junket business. However, it is actively involved in overseas casino operations in Russia, Vietnam and the Philippines,” Bernstein said.
“The future of this business has been questionable to us in light of China’s ongoing 2-year campaign against overseas gambling. We expect negative impact on the listed company as well.”
The analysts remain bullish on Macau’s prospects, however, pointing to the increasingly small contribution by the VIP segment to the EBITDA of concessionaires.
“As junkets shrink, some players may well shift to premium mass, which will help drive that segment,” they said.
“There is some concern that Suncity’s situation will cripple liquidity in Macau. This may be the case for junket business over the next few months … there may be some temporary impact on premium mass. However, we expect mass and premium mass to be largely unaffected in the long run by these junket problems.
“The key for Macau will be travel recovery and Chinese authorities allowing money movement into Macau in a reasonable manner to provide liquidity for mass.”