China's high rollers back at Macau gaming tables

Chinese high rollers are pulling Macau out of its doldrums, helping reverse the gambling Mecca’s two-year slump with cash created by soaring real-estate values and busy factory floors.

Revenue for some of the biggest junket operators -- middle-men who extend credit to high-rollers -- has surged more than 20 percent since the last quarter compared with a year ago, according to Kwok Chi Chung, president of the Association of Gaming and Entertainment Promoters of Macau.

“VIP room operators are very happy when we meet in the street or at the parties,” said Kwok. “Six months ago, they would complain about the bad market for the whole day.”

The windfall comes from a Chinese economy that accelerated last quarter for the first time in two years, boosted by China keeping its benchmark interest rate at a record low. Land prices and home values surged last year, and industrial profits increased by 8.5 percent after dropping the previous year.

Some of that cash trickled down south to Macau, where junket operators report surging revenue.

February’s gaming receipts are expected to increase by 10 percent from a year earlier to about 21.5 billion patacas (US$2.7 billion), according to eight analysts surveyed by Bloomberg.

Casino revenue from VIPs rose 13 percent last quarter, and their contribution to Macau’s overall gambling revenue gained about six percentage points from July to January, according to data from Bloomberg Intelligence.

Sell ratings on Galaxy Entertainment Group Ltd. and Sands China Ltd., the two largest casino operators there, have disappeared. Shares of Galaxy, Sands China and Wynn Macau Ltd. all surged at least 22 percent in the past 12 months.

“There’s a lot more confidence,” Ian Michael Coughlan, president of Wynn Macau, said during a Jan. 27 conference call. “There appears to be more liquidity in the market, particularly with the junkets, and it’s being sustained. The outlook is pretty promising.”

The junket revival comes after President Xi Jinping’s campaign against corruption caused VIP revenue to plunge for two years beginning in 2014 before bottoming out last year. That led to the shutdown of about half of the junket operators, leaving about 120 such companies currently in business, according to the Macau government.

The largest junket operators have boosted liquidity in recent months because of the consolidation, giving them more money to attract high-stake gamblers, said Ben Lee, managing partner at consultant IGamiX.

“Only the VIPs can drive a significant recovery in the gaming industry here in Macau,” Lee said. “The VIP segment has always been growth on steroids in good times, and it looks like this is what’s happening now.”

Still, casino operators say their long-term focus is on bringing in more tourists and leisure gamblers, in line with Xi’s order for Macau to diversify its economy. Las Vegas Sands Corp. reported its Parisian casino with an Eiffel Tower replica posted adjusted earnings of US$95 million in its first full quarter of operation.

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