Macau junkets on charm offensive, to improve transparency, information

Macau’s embattled junket operators have embarked on a public relations push following a series of scandals involving VIP promoters and ongoing concern about lack of transparency in the market.

VIP revenue in Macau slumped almost 40 percent in 2015 as Beijing’s ongoing drive against corruption forced high rollers to retain a low profile. From making up more than two thirds of revenue at the market’s $45 billion height, analysts reckon Macau GGR was split 50/50 last year with the mass sector predicted to continue to expand.

The number of junkets has also tumbled 23 percent since Jan. 2015, from 183 to 141, according to data from the Gaming Inspection and Coordination Bureau (DICJ). Most market observers expect that number to fall further amidst rising bad debts and shrinking liquidity.

Last week, Cali Group reportedly closed two of its four VIP rooms in Macau in order to shift resources to the Philippines. The company shut rooms at the Grand Lisboa and the City of Dreams of January 31.

Insiders say it’s difficult to estimate the level of debts currently owed in the junket system, due to the multi-tiered marketing system employed by the companies. But they expect further defaults as agents are unable to recoup money owed and pay their investors the promised return. That payback was as high as 2.5 percent a month in the case of Huang Shan, who disappeared in 2014 leaving debts estimated to be as high as $1.3 billion. Though the average return is about 1.5 percent to 2 percent.

Kwok Chi Chung, the head of Macau’s Association of Gaming & Entertainment Promoters, told Bloomberg recently that junkets were currently collecting only around 20 percent to 30 percent of their high-roller loans.

Tony Tong, co founder of debt-collection and risk management firm Pacific Finance Services said he had been predicting a “domino effect” among the junket operations. He says there have been many more cases of disappearances than those that have hit the headlines, where the amounts are smaller and have not been reported.

However, Tong said that, with the avalanche of bad news, the positive contribution the junkets have made to Macau has been overlooked. The system, which has been viewed as shady by western regulators, was a necessary part and parcel of attracting and financing mainland VIPs wanting to gamble in Macau.

“For the past five years to 10 years they have contributed huge amounts of revenue to Macau to the casinos and to the SAR government in terms of GGR tax,” he said. “The government gets paid when the customer loses, the government gets their 40 percent, the casino gets their 20 or 10 depending on which one. In other words, they have already contributed to the government and the concessionaires but they are the last to get paid if they ever get paid.”

To try to dispel some of the more negative impressions about the industry and to improve transparency, a new association has been formed. The Macau Gaming Information Association (MGIA), led by Charlie Choi Kei Ian and Antonio Hoo, with Tong as vice chairman, is launching a new app that will provide daily information about the industry.

The Association, which held its inauguration ceremony earlier this month, said it fully supports more government regulation of the sector, under new DICJ head Paulo Martins Chan.

“In the short run this may be painful for the junkets to adjust but in the long run I think it’s better for the government to take on more actions and to make it more transparent,” Tong said.

“The problem with Dore and other disappearances is a lack of transparency. The directors and the true shareholders are often not listed and most of the VIP gaming promoters in Macau have one person declared as one person limited liability, and often this one person who is licensed under the DICJ may not be the real investor, shareholder and director, so to promote transparency I think is becoming more important.”

He said down the road he expects the DICJ to gradually raise the bar in terms of the requirements relating to financial officers; background due diligence; investor background and regular inspection of financial accounts.

But he also stressed there needs to be greater protection for investors and junkets too, especially when it comes to recouping debts, even in Macau.

“The junkets are using their personal money to facilitate credit to the players and oftentimes they have problems in terms of collection because often there is a very complicated process for them to collect through the legal way.”

He cited the case of one creditor who had to wait for two years to get a judgement through the Macau courts and a month before that judgement, the mainland debtor sold his Macau-based property and ran away.

“The creditors are very angry because they tried to play by the rules and they got a judgement but not the money.”

Zheng Zhang, the operator of Macau’s first VIP slot club, agrees that the contribution made by junkets to the territory’s gaming industry is often not fully recognized, though he reckons that confidence could quickly rebound.

“There is a lack of comforting policies from the government and lack of recognition of their identity and working status - they are treated like any other tourists. There’s no appreciation of their contribution to tax and revenue,” he says.

“With just a little bit of positive policy, confidence will quickly rebound.”

However, few share his optimism and few analysts expect the Macau VIP market to fully recover. Thought that doesn’t mean the death of the junket system, as some doomsayers have predicted.

“If you look at overall outbound tourism from China it’s still increasing and that’s good news,” Tong says. “There’s still a lot of hidden wealth, a huge shadow economy there are a lot of wealthy people who have saved up money over the past 10 years but coming to Macau may get them on the target list, so many have chosen to go elsewhere, Vietnam, Cambodia, Laos, Australia, London, they are everywhere.”
Many of these alternative destinations are also offering much higher commission levels to the capped 1.25 percent rate in Macau, with Australia paying 1.6 percent and higher, the Philippines, Vietnam and Naga all offering 1.8 percent and higher.