Macau casinos curbs pay off for current players

HONG KONG/MACAU: A move by the world'sbiggest gaming hub, Macau, to rein in breakneck casino growth should helpestablished operators by shutting out aspiring rivals, but raises the spectre ofChinese government pressure for more restrictions. Macau Chief Executive EdmundHo announced on Tuesday a freeze on new gaming licences and land allocations fornew casinos, saying he was following Beijing's directives on the industry. Thedecision, which formalised what many have suspected, prompted share price jumpsof 9.2 percent for Las Vegas Sands 7.4 percent for Wynn Resorts with the U.S.firms seen cementing their places in a market where gaming revenues jumped 47percent last year to $10.6 billion. Hong Kong-listed Galaxy Entertainment shares soared 18.5 percent by 0350 GMT on Wednesday, with analysts saying thefirm's big land bank put the firm in a strong position, and Melco InternationalDevelopment rose 8.6 percent.

"This is definitely a longer-termpositive," said Morgan Stanley analyst Rob Hart, adding that gaming shares hadbeen suffering because of narrowing margins. "Too many operators have beenchasing too few VIP clients." Daily revenue per gaming table in Macau hasdropped to under $12,000 from $22,000 in 2002, when a four-decade monopoly ownedby casino mogul Stanley Ho expired and other players, including U.S. operators,were allowed in. The former Portuguese-run enclave, whose gaming revenuesovertook those of Las Vegas in late 2006, now has 29 casinos, run under threeconcessions and three more sub-concessions. But more than a dozen hotel, casinoand retail operators are building on the Cotai Strip -- 4 sq km (1.5 sq miles)of reclaimed land fusing two islands -- with most due to open next year and in2010.

A KNOWN UNKNOWN?

By inviting in global gamingfirms, Macau is trying to transform itself into an Asian entertainment centre,with plush hotels, luxury shopping, conventions and music concerts, and shakeoff a name for sleazy massage parlours and ragged casinos. But with storiesabounding of corrupt Chinese officials flushing cash through Macau andunscrupulous junket operators threatening indebted gamblers, some industrywatchers have suggested that Beijing could get nervous and clamp down. UBSanalyst Grant Chum noted that the Macau government, which said on Tuesday itwould try to regulate VIP junket commissions, could act again to control gaming.

"Uncertainty lies ahead as Mr. Ho indicated there will be morepolicies in the near term," Chum wrote in a note to clients. The major casinoplayers that have yet to wade into Macau's increasingly cut-throat market areHarrah's Entertainment, which owns a golf course in the territory, KerznerInternational Holdings and Malaysia's Genting . Richard Branson'sVirgin Group was also interested in building a casino, according to mediareports last year. These players could still make a move in Macau but would haveto forge joint ventures with incumbent casinos or buy them out. "There's nothingstopping Harrah's doing a casino if they lease a licence from a licence holder,"Hart said. "But the U.S. guys are unlikely to do those sorts of deals with acompetitor."

Also among the new restrictions announced on Tuesdaywas a moratorium on applications for new tables and slot machines at existingcasinos. The move could impinge on the expansion plans for gaming machinemanufacturers such as Shuffle Master Inc. International Game Technology andAustralia's Aristocrat Leisure Ltd. which have been busy installing Chineselanguage and symbols on their machines. Macau hopes its restrictions willencourage more investment by casino firms in non-gaming activities, such asretail and conventions. Such revenue accounts for about 20 percent of revenuefor operators in Macau, against 60 percent in Las Vegas. But Davis Fong, agaming expert at the University of Macau, said many casinos were just after fastgambling profits. "A lot of casino operators, especially those with a very highfinancial burden to buy the licence, need the short-term cash flow," Fong said.