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June 27, 2017

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Macau's gambling junkets may lose their game

MACAU -- The shadowy companies that bring China's millionaires to the gambling tables of Macau are facing their toughest time since the 2008 collapse of Lehman Brothers, and some of the smaller players may soon drop out of the game for good.

These junket operators, who extend credit to rich gamblers and then collect any debts in exchange for a hefty commission, bring in about 70 percent of gambling revenue in Macau, the world's most profitable gaming destination. They accounted for US$22 billion in revenue last year when business was booming.

Licensed in Macau, junkets help collect debts in China although their presence on the mainland are in a legal grey area. Part money lenders, part luxury concierge service, they often host China's elite in extravagant suites or palm-fringed pool villas owned by the billion-dollar casino companies.

When it comes to collecting debts, indelicate means are not unknown.

But back-to-back months of disappointing Macau gaming growth show how China's slowing economy has hurt business in the only place in the country where Chinese nationals can legally gamble in casinos. China's surprise interest rate cut on Thursday may not be enough to turn the tide.

Monthly turnover ascribed to China's super-wealthy VIP rollers contracted year-on-year in June for the first time since 2008.

AMAX Holdings, once among the most profitable players in Macau's junket industry, warned investors on June 29 its financial health had deteriorated so badly that it could cast doubt on the company's survival.

Five days earlier, AMAX's biggest shareholder was savagely beaten with hammers and sticks while dining at a restaurant in a Macau hotel where the company holds a 25-percent stake in its casino section.

Although the attack did not appear to be related to the company's financial woes, it revived images of a violent gang-ridden past that Macau has tried hard to bury as it moves to transform itself into Asia's answer to Las Vegas.

The health of the junket industry is critical for Macau's casinos, including those owned by U.S. gambling titans — Sheldon Adelson's Sands China and Steve Wynn's Wynn Macau. Macau's gaming revenues are six times that of Las Vegas.

Macau, a 50-minute ferry ride from Hong Kong, has more than 200 registered junket companies, also known as VIP room operators. When the Chinese economy weakens and liquidity is scarce, they have a tougher time collecting debts and recycling the funds as fresh loans.

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