Macau economic secretary says revenue won’t recover until second half of 2015

macau-francis-tam-revenue-slumpMacau casinos may not pull out of their current revenue decline until the second half of next year, according to Macau’s Secretary of Economy and Finance. Macau casino gaming revenue has fallen for four straight months and expectations are that October’s decline will be the biggest to date. On Thursday, Francis Tam Pak Yuen concurred with gaming analysts who have predicted October’s decline could come in as high as 23%.

Tam also agreed with recent projections that Macau could experience flat annual growth when full-year figures are tallied. That would be the first year of non-growth since Macau began keeping records in 2002. Tam noted that Macau’s total haul over the first three quarters of 2014 was up 5.9% over the same period last year but expectations are that the negative numbers over the final three months will erase this advantage. Worse, Tam suggested the gaming revenue decline “may last from now to the first half of next year.”

Attempting to put the best possible spin on things, Tam noted that Macau was enjoying a surge in tourist visitation, with arrivals up 7% through the first nine months of 2014 (although September’s figure was up just 3%). These tourists were continuing to spend money on hotels, shopping and food & beverage, but sales of luxury goods were down, reflecting the reluctance of VIPs to be seen living too high on the hog. Macau’s current slump is largely the result of sharp declines in VIP gambling, due in part to VIP fears of attracting the attention of Beijing’s anti-corruption watchdogs and a junket operator credit crunch.

That credit crunch could get even crunchier. SNL Financial analysts recently published a report saying the five biggest Chinese banks all saw increases in their number of non-performing loans (NPL) over the first six months of 2014. The expectation is that banks will further tighten credit, which will put even more pressure on the ability of junket operators to fund VIP’s gambling excursions to Macau. Analysts are predicting October’s VIP gambling revenue could fall as much as 30% year-on-year.

Macau’s declining revenue won’t have Tam to kick around much longer, as the Secretary broadly hinted that he intends to step down once Macau’s recently re-elected Chief Executive Chui Sai On’s second term in office takes effect in December. Tam, who has served with Macau’s government for 15 years, declined to comment as to who might replace him, saying only that Chui would choose a “capable and experienced candidate.”

Tam said his exit would have no effect on the negotiations for renewal of Macau’s casino concession licenses, which are expected to commence in earnest next year. Concessionaire SJM Holdings and its sub-concessionaire MGM China will see their licenses expire in 2020, with the remaining four companies coming up for renewal in 2022.