Credit Suisse cites casino liability between HK$30-50 billion in frozen deposits

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Global investment bank Credit Suisse has warned that Macau dealers could be held liable for “significant agent claims” following the disappearance of major junkets Suncity Group and Tak Chun Group, estimated at between 30 and 50 billion HK dollars (3.8 to 6.4 billion dollars). in the repositories remains frozen.

This final risk was highlighted by Credit Suisse analysts Kenneth Fong, Lok Kan Chan and Sardonna Fong in a note on Thursday and follows a recent decision by the Macau Court of Appeals which found that Wynn Macau Ltd and the junket promoter Dore Entertainment Co Ltd are jointly responsible for reimbursement. a debt of HK$6 million (US$770,000) owed to a VIP client.

The ruling, along with a similar case against MGM China in February, has been widely accepted as proof that casino operators will be held liable for any debt left behind by defunct junkets. This development has since been confirmed by the Macau SAR government in amendments to the city’s gaming law, which also prohibit junket representatives from accepting deposits from players except for the specific purpose of buying game chips obtained by the promoter from the associated dealer.

Credit Suisse said its estimate of HK$30 billion to HK$50 billion was based on an assumed rolling monthly capital ratio of 3x. Inside the Asian GameHK’s own internal calculations using different metrics came up with a similar number of between HK$35 billion and HK$40 billion in frozen wealth funds.

The last two decisions of the highest courts [against Wynn and MGM] hold casinos responsible for gambling-related deposits by gambling promoters,” Credit Suisse said. “Although it is still a long way off and not all cases will be successful, this is a significant risk that we cannot ignore.”

Despite its concerns, Credit Suisse said it remained bullish on Macau’s gaming sector on “potential recovery and undemanding valuation”, although less bullish amid recent COVID-19 developments in Mainland China.

Anticipating that any potential recovery won’t begin until 4Q22, analysts suggest the daily GGR could reach MOP$406 million (US$50.2 million) in the fourth quarter. By 2024, Mass GGR is expected to recover to 98% of 2019 levels, with VIP GGR remaining at around a third of 2019 levels. To reflect its latest GGR forecast, the investment bank has reduced the forecast to Dealer EBITDA from 19% to 53% and target prices from 15% to 60%.

CLSA also issued a note lowering its Macau GGR guidance for 2022 and 2023 by 24% and 10% respectively, with EBITDA guidance reduced by 72% and 20%. He said revenue is expected to return to 2019 levels in the first quarter of 2024.

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