Melco and Wynn exposed to debt-ridden junkets

Macau’s Melco Crown Entertainment Ltd and Wynn Resorts Ltd are most at risk of being exposed to debt-ridden gaming promoters, said Daiwa analysts, as reported by Bloomberg.

Wynn and Melco hold the “riskiest slice of the industry’s junket business” as they have the biggest slice of their revenue exposed to the VIP segment compared to other casino operators, said Daiwa analyst Jamie Soo in Hong Kong.

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

“This problem of rising bad debts continues to be a major issue in Macau, and is among the key drivers for the successive junket mergers and closures that we continue to see today,” said Soo in a note April 22.

In September last year, following the Dore junket theft scandal, the DICJ vowed to revise junket regulation, with the main focus being increased oversight and auditing of junket promoters.

The gaming regulator later denied 35 of Macau’s gaming promoters from renewing their licences later in January, as they had reportedly failed to meet the new requirements introduced in October, which included requiring junket operators to compile and submit monthly accounting reports, as well as file details of key staff in charge of financial operations.

Earlier this month, Bloomberg reported the Macau government is working on a proposal that could see the capital requirements for new junket operators increase 100-fold. 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.

Although the junket segment is unlikely to be affected by the new proposal, the policy direction points to further scrutiny, said Soo.