Macau's recovery under threat as cash exodus gathers pace

Business | Reuters and Stella Zhai 24 Sep 2020

Fears of China broadening a crackdown on offshore gambling has sparked a rush to withdraw billions of dollars from Macau, threatening a recovery in the local economy hard hit by the coronavirus.

Customers have been withdrawing money from junkets - companies that lure high rollers to gamble - after Beijing identified the cross-border flow of funds for gambling as a national security risk in July.

That has also led to a cash crunch in Macau's VIP sector at a time the SAR territory is struggling to recover from Covid-19 restrictions which have sent tourist numbers and gambling revenues plummeting. Several executives said that cash was being taken out in the billions of Hong Kong dollars.

While Macau casinos have ample reserves to ride out several months of zero revenues, the rising withdrawals point to a major loss of confidence in the crucial VIP junket sector in a further blow to the economy, analysts said.

The sector accounts for around 50 percent of overall gambling revenues, which hit US$36.5 billion (HK$284.7 billion) last year. The pandemic has already ravaged the economy, with gambling revenues down around 96 percent in the second quarter year-on-year.

As customers started pulling out money amid fears of a broader crackdown by Beijing, junket agents in turn have begun taking back deposits from the casinos.

Casinos have reacted by putting limits on the amount of cash chips that can be withdrawn, executives said. In some casinos, customers can now only withdraw HK$1 million compared with HK$5 million in recent months and only the account holder can withdraw. Any transaction over HK$200,000 is now flagged, leading to people carrying around HK$5 million in chips in multiple sets of $10,000 to avoid detection.

The withdrawals come as the mainland government fully resumed Macau tourist visas from yesterday, and executives warned that more arrivals could mean more cash being pulled out.

Shares of casino operators have been under pressure, with MGM China (2285) dropping nearly 10 percent so far this week, closing at HK$9.65 yesterday. Galaxy Entertainment (0027) ended 0.28 percent higher at HK$53.35 and Sands China (1928) rose 0.49 percent to HK$30.90.

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