Inside Asian Gaming

June 2014 inside asian gaming 19 personnel to Macau to service clients. Changes to the system could raise junkets’ business costs. The VIP trade has featured in some negative headlines dating back to the March conviction in Hong Kong of sportsman and junket investor Carson Yeung for money laundering. Not long after that, Hong Kong police detained the wife of an owner of Neptune Group, one of the three largest junket operators in Macau. She was reported to be carrying HK$200 million (US$25.7 million) in cash when she was arrested, and articles said her detention was part of a wider investigation into junkets and money laundering by mainland officials. Then came the news that an agent for a relatively obscure junket, Kimren, had disappeared with an estimated HK$8 billion-$10 billion from the company. Subsequent reports said the missing funds were from side-betting pools, the wagers that are not counted in official tallies and are believed to be vast. The incident fits into wider concerns about a slowdown in credit expansion in China, which could threaten junket liquidity, and slowing VIP revenue growth. Mr Choudhary notes that funds for side-betting and official table play come from the same sources of capital and so the Kimren incident could “meaningfully” affect overall junket liquidity. He also believes it may lead investors to shift from small junkets to larger ones, accelerating ongoing consolidation in the sector. He forecast VIP revenue for the remainder of 2014 at minus 5% to plus 5%, zone in Guangdong province, Macau’s neighbor, similar to the one established in Shanghai. Even more compelling is the projected growth of household spending power. Mr Tan used figures from consultant McKinsey to show that the number of urban upper-middle-class households with annual disposable incomes from RMB106,000 to 229,000 (US$17,000-$37,000) is projected to grow from 36 million in 2012 to 193 million by 2022. Households with disposable incomes above that level will grow from 7.7 million in 2012 to 32.1 million, and together they will constitute 63% of all urban households. Greater spending power will send even more Chinese travelers overseas, with Hong Kong and Macau among the top destinations. Mr Tan suggested that growth of mainland visitors to Macau will remain stable yet modest ahead of the major infrastructure-driven boost provided by the completion of the Pearl River Delta bridge, the high-speed rail system and the new Taipa ferry terminal. Macau’s current market penetration into the mainland is 1.5%, compared with 16.8% for Las Vegas in the US market. Matching the Las Vegas figure indicates another 30 years of growth from the mainland market alone, Mr Tan noted, adding, “Macau’s growth is mass-market growth.” He expects no political impediments to interfere with mainlanders’ travel to Macau. One piece of evidence is the special economic zone status granted Hengqin Island, just across the Lotus Bridge border crossing from Cotai, and cooperative development of the island with Macau. “Hengqin shows Beijing wants to help Macau with land shortage [issues] and diversification,” Mr Tan said. stimulus spending. Other steps expected to spur growth, according to Mr Tan, include accelerating investment in high-speed rail and other infrastructure projects; deregulation of the telecom, banking, transport and clean energy sectors; slicing business income taxes in half for small enterprises; and possibly creating a free-trade Melco Crown Entertainment Executive Vice President and chief of international marketing Kelvin Tan believes Premier Li Ke Qiang’s government is balancing efforts to rein in money supply growth with a mix of macroeconomic measures and reforms to stimulate the economy. “If they’re just focused on illegal [UnionPay] terminals it’s a small thing. If it’s a shot across the bow for something bigger, then it could have an impact.” Philip Tulk |director, Standard Chartered In Focus