JP Morgan: No Room for Panic for Macau Casinos for Now

Macau gambling industry is still struggling to rebound from the coronavirus impact and the subsequent restriction measures resulting in $27 billion less revenue this year, when a new existential threat is on the horizon: the adoption of the digital currently backed by the People’s Bank of China (PBC), the digital yuan.

Junkets Facing an Existential Threat

According to a report in Bloomberg based on unnamed sources, Macau’s casino regulator already had preliminary talks with the major casino operators regarding the possibility of using the government-backed e-renminbi (e-RMB). Such a move may well drastically reduce the need for junket operators, analysts from JP Morgan Securities (Asia Pacific) Ltd stated in a Thursday note.

Some of the biggest junket operators are already shifting resources elsewhere, scared that the imposition of a government-linked currency will be the death knell for an industry already crippled by the virus impact and the toughening of rules around high-rollers.

“To put it differently, the VIP segment – which accounted for approximately 40% … may no longer exist in a hypothetical world of full e-renminbi migration in Macau,” said JP Morgan Securities

These companies arrange details around gambling trips for Chinese high-rollers, including private jets and hotel stays, and the introduction of the e-RMB will eliminate the need for a currency conversion of yuan into Hong Kong dollars, impacting junket’s role as providers of credit to gamblers for betting in Macau’s casinos, but will also eliminate hefty commissions casinos pay to junkets – currently approximately 44% of VIP gross gaming revenue (GGR), JP Morgan analysts outlined.

The Gaming Inspection and Coordination Bureau in the Special Administrative Region (SAR) of China stated the report was not true, yet people familiar with the matter claim that discussions are at an early stage with no final decision on whether to proceed.

High-Rollers Will Shift Away from Macau

The move will be a substantial hit for the gaming industry in Macau, as high-rollers which account for $17 billion of revenue per annum will most likely shift to less-regulated areas like the Philippines and Cambodia, and even small gamblers will be put off by the idea of the surveillance.

The breach in customer privacy will restrict gambling amounts to the conversion cap on the digital yuan to other currencies, up to CNY50,000 per person for a two-to-three day trip to Macau, analysts from JP Morgan argued. Analysts said not everything is doom and gloom as “we don’t think investors should make anything of this news, at least for now”.