Macau casino junkets bundling bad VIP gambling debts and selling at a discount

macau-casino-junket-debt-selling-discountMacau casino junket operators are collecting as little as one-fifth of the money they lend to VIP gamblers, threatening not only their ability to offer loans to new gamblers but also the junkets’ very survival.

Kwok Chi Chung, the head of Macau’s Association of Gaming & Entertainment Promoters, gave an interview to Bloomberg last week in which he revealed that junkets were currently collecting only around 20% to 30% of their high-roller loans. In 2013, when Macau’s 18-months-and-counting revenue decline was still an unimaginable situation, Kwok said 70% of loans were repaid promptly.

The problem has been building for some time. A year ago, the Hengsheng Group junket reported that one-third of its outstanding VIP debts were more than a year old. Earlier this year, Macau’s Court of First Instance was flooded with new lawsuits filed by junkets in pursuit of repayment.

Tony Tong, co-founder of Hong Kong-based debt-collection and risk management firm Pacific Financial Services Ltd, said the junkets’ average collection period had gone from its traditional window of one to six months to today’s 12 to 18 months.

Even these long-delayed collections only come after a significant amount of “patience, begging and hassle,” and Tong said some junkets had begun bundling groups of bad debt assets and selling them to third party investors at a discount rather than expend any more time and effort on chasing the deadbeats.

With Beijing cracking down on public officials’ corruption and underground banking networks, Macau’s VIP gambling revenue has plummeted and junkets are trapped in a vicious cycle. Their inability to collect debts leaves them with less cash to fund gambling by other VIPs, and Kwok says “the business size is shrinking accordingly.”

Recent scandals involving internal thievery have led some junket investors to withdraw their funds, putting even more downward pressure on operators. Kwok said junkets were increasingly putting their focus on quality over quantity when it came to offering credit to VIP gamblers.

Kwok said matters would likely come to a head following February’s Lunar New Year celebrations, a traditional time for the settling of accounts. Unless a critical mass of VIP bettors can honor their debts, Kwok said more Macau VIP rooms will close and more junkets will fold their tents. Bottom line; “Macau won’t return to the heyday.”