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Extra $21.5m in bad VIP debts force Iao Kun Group to boost Q2 loss to $125.8m

TAGs: iao kun group holding company ltd., junket operators, Macau, suncity group

Extra $21.5m in bad VIP debts force Iao Kun Group to boost Q2 loss to $125.8mMacau casino junket investor Iao Kun Group Holding Company (IKGH) has alerted investors that its dire Q2 financial numbers were actually even more dire than originally reported.

Late last month, IKGH announced a net loss of $104.4m in the three months ending June 30. On Friday, IKGH announced that it was boosting these losses by a further $21.5m, bringing the total net loss for Q2 to $125.8m.

IKGH says the extra $21.5m came from a further study of the $159.2m in outstanding VIP debts the company is carrying on its books. IKGH says that the $21.5m is at “an elevated risk of collectability.” IKGH director Jim Preissler said last month that around $40m of its VIP debts were over 180 days outstanding.

IKGH has been in a financial tailspin for the past two years, a downturn that accelerated rapidly in September. The company closed all but one of its Macau VIP rooms and saw its highly publicized acquisition of a South Korean casino come to naught when it couldn’t raise the necessary financing on time.

IKGH’s share price fell nearly 12% on Friday, closing at 30¢. Last month, the NASDAQ exchange put IKGH on notice that it must boost its share price back above the required $1 minimum or face delisting.

IKGH isn’t the only junket bleeding red ink. The (once) mighty Neptune Group, which lost $103m in fiscal 2014-15 and had predicted “a significant loss” coming in 2015-16, suspended trading in its shares this week after failing to file its annual report on time.

Yet not all junkets are suffering. This week, Union Gaming analysts reported that Suncity Group had enjoyed “a significant increase in volume” during the first days of the Golden Week holiday period. Suncity holds the biggest share of Macau’s overall junket business and Union Gaming says the Golden Week gains have “translated into an even greater share.”

The junket industry suffered a crisis in investor confidence following a string of high-profile incidents of internal theft. This week, Morningstar analysts said their checks found that “confidence in the safety of the deposits in the junket system has continually improved since the New Year, helping liquidity and thus VIP rolling in the junket market.”

Morningstar’s Chelsey Tam added that this new investor funding was “coming from various individuals instead of just one or two big depositors, which leads us to think that it is more broad-based and more sustainable.” Tam also believes the consolidation of the junket industry has gotten rid of smaller junkets with poor compliance systems, which “should reduce the likelihood of another theft.”

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