Macau casinos’ chips are down

MACAU’S prospects as the world’s casino capital depend on policymakers in Beijing, a reality that — if ever in doubt — was made clear last year as China’s antigraft crusade dealt the coastal city its first annual decline in gambling revenue.

Last year gambling revenue in Macau fell 2.6 per cent to 351.5 billion patacas ($54.3bn), government data showed on Friday. It was the first decline since a public accounting of such data began in 2002. December gambling revenue plunged a record 30 per cent from a year earlier to 23.29 billion patacas, extending a seven-month losing streak in the casino hub.

The slide has pummelled ­casino stocks. Shares of Macau’s six licensed casino operators fell an average 40 per cent last year. Las Vegas Sands Corporation unit Sands China and Galaxy Entertainment Group — the two operators included in Hong Kong’s blue-chip Hang Seng index — were among the worst-performing stocks on the index last year, weighing down the entire market. Galaxy shares dropped 37 per cent, and Sands China shares fell 40 per cent, compared with the Hang Seng’s 0.4 per cent rise for the year. By contrast, in 2013 when Macau gambling revenue rose 19 per cent, prices more than doubled for shares of Nasdaq-listed Melco Crown Entertainment and Hong Kong-listed MGM China Holdings and Galaxy.

That year, Macau, which for some time had been growing annually by the size of the Las Vegas strip, raked in seven times the gambling revenue as its US counterpart. So the sharp revenue reversal for the Chinese casino hub in 2014, even as visitors continued to pour in, was a shock to many executives, analysts and ­investors.

The China-wide crackdown on corruption had driven the sudden downturn, they said. While netting many top officials on the mainland, the sweeping campaign also prompted highrollers to shy away from Macau’s baccarat ­tables, industry watchers said. Other government policies also have hurt gambling revenue, including tighter visa policies for Chinese travelling to Macau and increased oversight of the UnionPay cards many gamblers use to access funds there.

Many associated with the industry said they had no idea when things in Macau would improve, though they said the casino hub would eventually right itself.

Wynn Resorts chief Steve Wynn, who has long lauded what he deemed predictable government policies in China, said last year that the anti-graft campaign had “put a lot of the wealthy businessmen in the foxholes” and that he was unsure how long the policies would affect Macau.

Beijing has also been intensifying its calls for Macau to diversify its economy away from gambling, which accounted for more than 80 per cent of the local government’s revenue in 2013, according to official data.

Chinese President Xi Jinping reiterated the message during a rare visit to Macau last month.

A once desolate Chinese island called Hengqin is the linchpin of the diversification plan, according to a Macau government adviser. China wanted land-strapped Macau to use its riches from gambling to develop non-gambling ventures on the island, the person said.

Hengqin is three times the size of Macau and part of the economic powerhouse known as the Pearl River Delta, which includes major cities in southern China as well as the special administrative regions of Macau and Hong Kong.

But Beijing has been frustrated with the slow pace of development on Hengqin and complained that many Macau investors were just sitting on island property with no plans to develop it soon, said an executive involved in discussions about Hengqin.

Now, however, the central government was no longer just suggesting changes, said the Macau government adviser. The call had become “an order”.

Macau casino operators, including Galaxy and MGM China, have said they planned to invest in non-gambling projects in the area. Casino companies could also participate in the diversification plan by offering more non-gambling activities at their casino resorts, said Ambrose So, chief executive of SJM Holdings, Macau’s oldest casino operator.

“Integrated resorts offer a diverse mix of activities for patrons — including lodging, dining, shopping, entertainment” and meetings and convention facilities, he said in an email.

“This requires hiring and training local employees with a diverse set of skills.”

While China’s policies had hurt casino investors, many in Macau welcomed the fresh direction, said Eric Sautede, a political commentator and part-time university professor in Macau.