Macau considers raising capital requirements for junkets

The Macau government is working on a proposal that could see the capital requirements for new junket operators increase 100-fold, reports Bloomberg who quotes inside sources.

One proposal includes raising capital requirements for new junket operators to MOP10 million (US$1.3 million), from MOP100,000, and also requires at least one shareholder to be a Macau resident. The new rules will not affect existing licensed providers.

“We expect Macau government to crack down on junkets and ensure they comply with various requirements,” said CLSA gaming analyst Aaron Fischer in an interview with Bloomberg. “We’re not expecting many, if any, new junkets in Macau as the current ones are fighting for survival.”

Macau’s casino junkets, who loan money to Chinese high-rollers for gambling in the city, have found it increasingly difficult to collect money they lend VIP gamblers.

Kwok Chi-chung, president of Macau’s Association of Gaming & Entertainment Promoters  revealed they are collecting as little as 20 percent of the money they lend to VIP gamblers.

In an interview with Bloomberg in January, Kwok said: “Getting the money back is a bigger challenge now for junkets than before. With a longer payback period, junkets have less money to lend to new customers, and the business size is shrinking accordingly.”

In February, Kwok, said he foresaw more closures of VIP rooms in the year ahead.

“The current situation is like the aftershocks following an earthquake. After some time, some VIP rooms may have seen the number of customers that they receive is not enough to support their operations. As such, they may prefer shifting some of their resources and focuses from Macau to other places in order to decrease their operational costs here,” he said.

Kwok also added that the larger-scale VIP rooms may find the most difficulties in adapting to the downturn. “It is not necessary that smaller rooms are always the ones shutting down their businesses. It depends on how these companies manage their finances. After all, their operations get worse due to having given out too many loans before. Amid the downturn, it is difficult for them to chase up the debts, so their capital flow is affected,” he explained.