Global investment bank Credit Suisse has warned that Macau’s concessionaires could be liable for “sizeable agents claims” following the demise of leadings junkets Suncity Group and Tak Chun Group, estimating between HK$30 billion and HK$50 billion (US$3.8 billion to US$6.4 billion) in deposits remains frozen.
Such tail-end risk was highlighted by Credit Suisse analysts Kenneth Fong, Lok Kan Chan and Sardonna Fong in a Thursday note and follows a November ruling by Macau’s Court of Appeal which found Wynn Macau Ltd and junket promoter Dore Entertainment Co Ltd jointly liable for repayment of a HK$6 million (US$770,000) debt owed to a VIP customer.
The ruling, along with a similar case against MGM China in February, has been widely accepted as evidence that casino operators will be held liable for any debts left by defunct junkets. This development has since been confirmed by the Macau SAR Government in amendments to the city’s gaming law, which also make it illegal for junket representatives to accept player deposits unless for the specific purpose of purchasing gaming chips obtained by the promoter from the associated concessionaire.
Credit Suisse said its HK$30 billion to HK$50 billion estimate was based on an assumed 3x monthly rolling to capital ratio. Inside Asian Gaming’s own internal calculations using different metrics resulted in a similar number of between HK$35 billion and HK$40 billion in frozen junket funds.
“The two recent highest court rulings [against Wynn and MGM] hold casinos liable for gaming-related deposits by gaming promoters,” Credit Suisse said. “Although it is still remote and not all cases will be successful, this is a significant tail-end risk that we cannot ignore.”
Despite its junket concerns, Credit Suisse said it remains upbeat on Macau’s gaming sector on “potential recovery and undemanding valuation”, although it is less bullish amid recent COVID-19 developments in mainland China.
Anticipating that any potential recovery won’t begin until 4Q22, the analysts suggest daily GGR could reach MOP$406 million (US$50.2 million) in Q4. By 2024, mass GGR is tipped to recover to 98% of 2019 levels with VIP GGR remaining at roughly a third of 2019 levels. To reflect its latest GGR forecasts, the investment bank has slashed concessionaires’ EBITDA forecasts by 19% to 53% and target prices by 15% to 60%.
CLSA also issued a note downgrading its 2022 and 2023 Macau GGR forecasts by 24% and 10% respectively, with EBITDA forecasts cut by 72% and 20%. It said revenue is projected to recover to 2019 levels in the first quarter of 2024.
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