Macau casinos pull the plug on junkets

Macau's casino operators Wynn Macau(1128), Melco International Development (0200) and Sands China (1928) have reportedly decided to close VIP gambling rooms run by junkets this month, a week after the head of the city's top operator was arrested.

Wynn, which runs two casinos in the Chinese gambling enclave, will close all junket rooms from December 20, while Melco, which has three Macau casinos, will shut its rooms a day later, Bloomberg said, citing sources.

Sands China is also said to be following the move.

Junkets account for some 75 percent of Macau's roughly US$3 billion (HK$23.4 billion) in annual VIP gaming revenue, providing a service that is part upscale travel agent and part money changer for big spenders in Macau. Casinos lend the operators chips so they can extend credit to VIP gamblers, which potentially leaves the casinos exposed to bad debt should junkets default.

The casino operators' move to halt the US$2.2 billion stream of gambling revenue that junkets bring in reflects a scramble to limit their exposure to the sector, which has been facilitating trips by big-betting punters from China's mainland - where casinos are banned - to Macau for decades.

Alvin Chau, the chief executive of Macau's biggest junket operator Suncity Group (1383), was arrested late last month on allegations of establishing overseas gambling platforms and carrying out illegal virtual betting activities. Suncity has since closed all of its VIP gaming rooms in Macau's casinos and is said to have told some staff it will stop paying them amid concerns over cash flow.

Casinos are also required by Macau law to supervise and take responsibility for any junket activity happening in their casinos. Providing VIP gamblers with credit is one of the practices that got junkets in trouble with authorities as it can facilitate money laundering and capital outflow from China.

The risk of engaging with junkets now exceeds the returns for casinos, said Ben Lee, a Macau-based managing partner at consultancy firm IGamiX. "The junkets were the means to an end, helping the casinos crack the China market."

Credit Suisse analysts including Kenneth Fong said a scaling down of the VIP sector, which accounted for about one-third of Macau's gaming revenue in the first three quarters, will likely hamper market sentiment.

Shares of all six major gaming operators in Macau rebounded 3.4 percent to 6.2 percent yesterday, led by Sands and Wynn.