Casino stocks plunge on tighter credit fears
Source: Agencies |
00:00 UTC+8 October 4, 2011
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Print Edition
Print Edition
MACAU casino stocks plunged yesterday on fears tighter credit in Chinese mainland will curtail the flow of wealthy high-rollers that have powered the city's gambling boom.
The biggest casino operator, SJM Holdings Ltd, lost a quarter of its value on the Hong Kong stock exchange. MGM China Holdings Ltd, a unit of MGM Resorts International, tumbled 20 percent and other Hong Kong-listed units of US casino operators also plunged. The declines outpaced the 4.4 percent decline in the benchmark Hang Seng Index.
About two-thirds of Macau's gambling revenues, which soared nearly 60 percent to US$23.5 billion last year, are estimated to come from high-spending mainland residents who gamble with borrowed money from so-called "junket operators."
The junket operators are essentially tour agencies that help Chinese mainland residents travel to Macau, but also lend them money to gamble in private VIP rooms and collect debts when they return home.
Some junket operators are financed through China's underground lending system, which has sprung up to lend to private enterprises that have a hard time getting loans from China's mostly state-owned banks. Recent reports that these unofficial lenders are tightening credit are spooking investors, analysts said.
"It's hard to tell really what's going on but as we hear these stories, these rumors, people are seizing on them and using it as an excuse to sell things down," said Philip Tulk, head of gaming research at Royal Bank of Scotland.
Last week, reports emerged that the east China city of Wenzhou was struggling with a credit crunch that cut off the only source of funding for private companies and prompted dozens of debt-laden company bosses to flee.
Tulk said Macau gaming stocks had risen 20 percent for the year before yesterday so investors are also selling to lock in gains.
Macau is the only place in China where casinos are legal and its economy has boomed since a four-decade casino monopoly was dismantled in 2002. The special administrative region became the world's most lucrative gambling market in 2006, overtaking Las Vegas.
The biggest casino operator, SJM Holdings Ltd, lost a quarter of its value on the Hong Kong stock exchange. MGM China Holdings Ltd, a unit of MGM Resorts International, tumbled 20 percent and other Hong Kong-listed units of US casino operators also plunged. The declines outpaced the 4.4 percent decline in the benchmark Hang Seng Index.
About two-thirds of Macau's gambling revenues, which soared nearly 60 percent to US$23.5 billion last year, are estimated to come from high-spending mainland residents who gamble with borrowed money from so-called "junket operators."
The junket operators are essentially tour agencies that help Chinese mainland residents travel to Macau, but also lend them money to gamble in private VIP rooms and collect debts when they return home.
Some junket operators are financed through China's underground lending system, which has sprung up to lend to private enterprises that have a hard time getting loans from China's mostly state-owned banks. Recent reports that these unofficial lenders are tightening credit are spooking investors, analysts said.
"It's hard to tell really what's going on but as we hear these stories, these rumors, people are seizing on them and using it as an excuse to sell things down," said Philip Tulk, head of gaming research at Royal Bank of Scotland.
Last week, reports emerged that the east China city of Wenzhou was struggling with a credit crunch that cut off the only source of funding for private companies and prompted dozens of debt-laden company bosses to flee.
Tulk said Macau gaming stocks had risen 20 percent for the year before yesterday so investors are also selling to lock in gains.
Macau is the only place in China where casinos are legal and its economy has boomed since a four-decade casino monopoly was dismantled in 2002. The special administrative region became the world's most lucrative gambling market in 2006, overtaking Las Vegas.
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