As if the existing problems for Macau were not enough, Neptune Group, a junket operator, reportedly stated that it might cut back on its business and lower its operations in the region if the situation in the gambling industry did not improve. Neptune is a loan facilitator for VIP gamblers and such a step would leave less cash for people who come to try their fortunes.
Not surprisingly, this news had an adverse impact on investors' sentiment. Hence, share price of leading casino operators like Las Vegas Sands Corp. LVS , MGM Resorts International MGM , Melco Crown Entertainment Limited MPEL and Wynn Resorts Ltd. WYNN tumbled in yesterday's trading. In fact, Las Vegas Sands hit a 52-week low of $37.69. Macau is a key operating region for these companies.
Why is Neptune Contemplating this Move?
Neptune Group reportedly incurred huge impairment losses from investments in Macau VIP rooms, amounting to $106.8 million in fiscal 2015. The group blamed shrinking access to banking facilities amid regulatory tightening and Beijing's continued crackdown on illegal money flows and a slowing economy for the lacklustre performance. It does not expect recovery in the next one year and might discontinue operating in the VIP gaming sector if the situation persists.
The VIP gambling industry in Macau has been bearing the brunt of an anti-graft corruption campaign run by the government since May 2014. As a part of the crackdown on corruption in China, Macau officials have imposed strict restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. These restrictions have lowered footfall at the casinos. In fact, owing to the drive, Macau has posted revenue declines for 15 consecutive months that includes 12 months of consecutive double-digit decline.
The worst is not over yet. Per media reports, the Gaming Inspection and Coordination Bureau intends to further review the regulations, in view of the recent events. While, on the one hand, a Neptune Group shareholder is facing money laundering charges, on the other hand, authorities are already investigating the recently reported theft at a large junket group, Dore Entertainment, which operates at Wynn Resorts' Wynn Macau casino.
Given the yuan devaluation, government's scrutiny of money flows and the possibility of tighter junket regulations, Neptune Group believes that VIP gaming volumes will most likely be affected, thereby leading to increased junket room closures.
Prior to the anti-corruption campaign, VIP junkets accounted for 70% of the monthly gaming revenues in Macau. The number has declined to 50% owing to the anti-corruption drive. However, an analyst at Union Gaming Securities does not believe that Neptune Group would leave Macau but expects to see more junket closures. This would create a liquidity crunch, thereby aggravating Macau's woes.
We would like to remind investors that share price of these casino operators have been falling for more than a year now. Wynn Resorts' share price recently hit a six-year low. Share price of Las Vegas Sands, Wynn Resorts, MGM Resorts and Melco Crown have plunged 30%, 63%, 15.5% and 43.5% year-to-date.
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