Casinos Fall as Crown Detentions Spur China Crackdown Fearsby
Government last year started crackdown on foreign casinos
‘Clearer signal’ to operators, junkets in region: consultant
Casino shares fell in Hong Kong after Chinese authorities detained employees of Australia’s Crown Resorts Ltd., the latest sign of the government’s clampdown on foreign companies trying to woo its citizens to gamble overseas.
Sands China Ltd. dropped 3.3 percent, while Galaxy Entertainment Group Ltd. lost 4.3 percent. The Bloomberg Intelligence index of Asia Pacific casino stocks decreased 2.8 percent, paced by billionaire James Packer’s Crown, which lost 14 percent, the biggest one-day decline on record.
The Crown detentions, including head of its international high-roller operations, prompted staff from some Macau casinos to leave China after “large-scale staff departures” from Crown and other Australian casino operators, Daiwa Capital Markets Hong Kong Ltd. analyst Jamie Soo wrote in a note Monday. Disruptions will be most heavily felt in Macau’s VIP and high-end mass segments as it gets harder to market and facilitate business, he wrote.
Macau, the world’s largest casinos hub, has been trying to diversify its economy after China President Xi Jinping in 2014 ordered the Chinese city to cut its dependence on gambling amid his anti-corruption campaign. Authorities have since been curbing the activities of junket operators, agents who bring Chinese high-rollers overseas to gamble and loan them money to play with, in effect skirting the country’s currency controls.
“This is a clearer signal to all casino operators and junkets in the region, that the Chinese government doesn’t like gambling and will continue the crackdown on the industry and capital outflow,” said Tony Tong, founder of Hong Kong-based risk management consulting firm Pacific Financial Services Ltd.
Casinos in countries including the Philippines, South Korea and Australia have sought to fill the gap amid Macau’s two-year downturn in gambling revenue, working with junket operators to bring Chinese players there. Paradise Co., South Korea’s largest operator of casinos for foreigners, said in February last year it was increasing gambling space to cater for a boom in Chinese visitors. Months later, some of its employees were arrested in China.
All six of its employees who were arrested in China last year have been released after serving jail time, a Paradise spokesman said Monday. Two of them were released today, while four others were set free in the summer.
Paradise fell 2 percent in Seoul trading, while fellow Korean casino operator Grand Korea Leisure Co. lost 1.9 percent.
The arrests of the Koreans last year hasn’t dulled the enthusiasm of foreign casino operators for the lucrative Chinese high-rollers market. Despite the gambling slump in Macau, the city’s revenue for high-stakes baccarat, the card game of choice for Chinese players, still came up to $16 billion in 2015 or 55 percent of the total.
Residents of Taiwan’s Penghu County, outlying islands off the southern coast of mainland China, considered building casinos to attract tourists, before voting it down in a referendum on Saturday. Japan, one of the most popular destinations for Chinese travelers, has also been trying to legalize casinos to attract more tourists.
“When the government’s tone is clear, casinos and junkets need to work smarter in the market,” Tong said. “It’s dangerous and risky to open offices, organize parties, send business cards and even collect gambling debts in mainland China.”