Weak yuan stacks odds against flagging casino revenues

A weaker yuan could further shrink Macau’s gambling revenues by making it more expensive for Chinese gamers to place their bets, executives say, with one analyst estimating the unfavourable forex rate alone could result in a 10 percent drop next year, Reuters reported yesterday.
Chinese punters account for more than 60 percent of all visitors to Macau’s 36 casinos. Bets, however, Reuters recalls, are made in Hong Kong dollars and not the yuan, which has weakened some 3 percent against the U.S. dollar since the central bank last week announced a surprise devaluation. Sources involved in the policy-making process told Thomson Reuters it may weaken even further to help struggling Chinese exporters.
According to the news agency, the devaluation adds to the challenges facing Macau’s casino industry, which has notched 14 consecutive months of falling gambling revenues as a broader crackdown on corruption and slowing growth in the world’s second-largest economy kept Chinese gamers away.
Revenues are set to decline yet again in September. “It has been one thing after another,” Galaxy Entertainment Chief Financial Officer Robert Drake told Reuters after the company reported a 66 percent fall in its first-half net profit from a year earlier.
“In the short term we are still assessing the overall impact of the yuan devaluation on the market and what it means for Macau,” he added.
In a recent note, analysts at Daiwa Capital Markets forecast that excluding all other factors, the weaker yuan will have an 8-10 percent downward impact on mass gross gaming revenue next year. The decline in revenues from the VIP segment, which comprises gamblers who bet at least 1 million yuan at a time, could be as much as 20 percent, Daiwa added.
Some junket operators may also take a hit if the yuan weakens dramatically as it could lengthen the time it takes for their clients to repay debts. Junkets are companies or individuals that extend credit to wealthy players on behalf of the casino operator and are responsible for settling any debts.
“It will probably impact the smaller junkets more. If they don’t have cash flow they won’t be able to wait for their players to pay them back,” said Wayne Lio, a senior executive at one of Macau’s biggest junkets, Tak Chun, quoted by Reuters.