The “people’s currency” is the bedrock of Macau’s success, as anyone invested here should know by now. But not for its purchasing power inside Macau. It is rather for its non-convertibility, which has ensured that Macau plays a vital role in helping mainland Chinese turn onshore liquidity into offshore hard-currency assets. But that might be about to change – in a very positive way for the city’s drive to become more than a gaming hub.

We have to wonder why else the head of the Macau Association of Banks, Ip Sio-kai, would have told the Macau Daily Times yesterday that Macau could become an “offshore financial hub”. He specifically said Macau could “gradually turn itself into something similar to the Renminbi circulation hub and distribution center in Hong Kong” and could use its position as a gateway to Portuguese-speaking countries “in order to introduce the Renminbi into these countries”. There were other points, but these are the two key ones to note.

Hmm. Are we about to see a mushrooming of Chinese currency deposits in Macau? How could that benefit the casinos? And why would the holders of these deposits rather have them here than in Hong Kong?

It is hard to know and unwise to speculate on such matters. But if we had to hazard a guess, we would say it is highly unlikely the casinos would ever be allowed to open RMB-denominated tables. Why pass the conversion profit from RMB on a HK$100 chip to them, rather than keeping it in the pocket of the customers? But the banks are a different story. If the mainland authorities have decided that they want to push the use of RMB in Angola, Mozambique, Brazil and other such places, then the value of the casinos to them in this endeavor may actually decline as the banks accept RMB deposits and handle trade and “other” instructions directly with overseas banks themselves. Much of this is happening already, of course, just through the exchange of US dollars. But when you are able to deal in RMB, it’s much less hassle and paperwork. And you don’t have to give a 2.87% cut to anyone.

That said, if this boom in non-casino financial services is to materialize, where are the workers going to come from? It is not only in the construction industry that manpower is lacking. Perhaps this is another reason why the Guangdong-Macau cooperation framework was put into play at the NPC this past weekend. It certainly looks like Hengqin and Macau are going to be joined at the hip once the new U-Mac campus is built and we can all drive our big Benzes over there at 60kph without the need for mainland license plates. Macau needs to expand, both in terms of land and human resources. But it needs to be handled carefully. That’s why people like Ip Sio-kai always use the word “gradually”.

Stay tuned.

Copyright & used with permission from IntelMacau

Just got an email from a USA reader that he has posted an article on gambling addiction. Placing a bet is as easy, stopping an addiction is much harder. Check out some of the blogs and resources if you are interested.

What a strange thing for the Finance Secretary to say. Speaking to reporters on the sidelines of a symposium in Macau yesterday, Francis Tam told the youth of Macau to start thinking about careers other than in the casino industry, because its startling growth of the past decade was soon to become a thing of the past.

Admittedly, he gave no indication of what exactly this means, saying only that the industry will not shrink but will certainly not grow forever at the pace it has been. Perhaps readers can make better sense of his comments than we can. Read the full report online at Macau Daily Times.

One thing we cannot help but speculate on, however, is this: if Tam means Cotai is not going to be built out at the pace its would-be tenants expect, thereby creating tens of thousands of new jobs per year over the next decade, then who does that favor? Why, the incumbents, of course. Especially the one sitting on the most valuable properties right in the heart of the Cotai Strip, the one currently being investigated by the SEC and DOJ. Stay tuned. Copyright and used with permission of IntelMacau

The announcement by Las Vegas Sands Corp. in New York overnight that it was cooperating with investigations by the SEC and Department of Justice should concern investors. Not merely because there may be any substance to the allegations of FCPA infractions by former Sands China CEO Steve Jacobs, which the company admits it believes is the foundation of the investigations, but because the US government has finally decided to pay closer attention to what is going on in Macau.

We must be frank and say we thought the likelihood of Uncle Sam getting off his butt and trying to find out if he should be concerned about this dark corner of the planet was, until now, low to zero. No longer. The only question is whether these investigations will be a mile wide and an inch deep or the inverse. The company has been wise to take the initiative and announce the investigations to the public promptly, and spokesman Ron Reese is right to say that management will cooperate in what is clearly only at this stage “fact-finding enquiries”. Panic is not an option right now, especially when Sands China is performing so strongly and continues to occupy a dominant position in the world’s largest gaming market. We will just have to wait and see what happens next.

Copyright and used with permission of IntelMacau

PokerStars Macau at Casino Grand Lisboa launched the Macau Poker Cup (MPC) this week which runs from February 21-27.

Event 1, the Charity Event, had 139 players and a prize pool of HKD $291,263 which are both new records for this long running MPC tournament.

Hong Kong’s Roy Wan was the winner and collected HKD $60,300 and a HKD $11,000 Red Dragon main event entry for his victory.

The Charity event raised HKD $69,500 for Caritas de Macau who are the leading social services organization of Macau. The worthy cause brought out the likes of Team PokerStars PRO: Asia players Bryan Huang, Raymond Wu, and Celina Lin. UK’s Team PokerStars PRO: Online and popular blogger Dale Philip also joined the opening event.

Huang, the defending Asia Player of the Year (APOY), looked comfortable heading into the final three with a chip lead. However, it would be Wan who would knock out Japan’s Shingo Cho and gain the chip advantage entering heads up play.

Huang went all-in on a flop of 7-5-4 and was called. Huang held 65o for the middle pair and open ended straight draw. Wan had T7s for top pair and that would hold for the win.

Photo used and copyright to PokerStars Macau

See our CNY 2011 photo album for more photos.

According to the Portuguese news agency Lusa, the government has sent a letter to STDM and SJM pointing out that notification of changes in its shareholding structure have not yet been sent to the government for approval, and asking for a clarification. “Faced with media news, the government sent a letter to [SJM], which explained what has happened and mentioned that the situation was not clear,” Lusa was quoted as reporting by Macau Daily Times. However, the source quoted by Lusa added that the government “will do nothing until the situation becomes clear and the dispute within Stanley Ho’s family is solved”. It is apparently still waiting for a response to its letter to STDM.

Only in Macau could a regulator be as clumsy and impotent as this. It is perfectly clear what has happened, to all but the blindest of the blind. One part of the family has taken control of the gaming empire and another part of the family doesn’t like it. But the part of the family that took control of STDM, and thus SJM, did not get government approval for the share transfer. All the chief executive has to do is pull Stanley Ho and his two families – belonging to No. 3 and No. 2 – into his office and ask them, “Okay, Stanley, do you or do you not want this stake to be transferred? If yes, we will consider whether to approve it. If no, it will be rejected, and here is the procedure we will follow if you do not reverse the share transfer yourselves.”

The real issue, however, runs much deeper than that, of course. But this government cannot continue to be paralyzed by indecision forever. At some stage it has to confront the fact that one of the feuding parties in this dispute already controls another gaming operator in Macau, and that gaining control of SJM, albeit indirectly, is a violation of everything that stands behind the 2002 liberalization of the industry. Stay tuned for more drama.

Used with permission and copyright IntelMacau

Whoa! Wynn Macau has just under 500 gaming tables, only 1,000 hotel rooms, and a collection of shops and F&B outlets that covers a fraction of the square footage of its rival in Cotai. And yet it managed to generate Ebitda of US$296m in 4Q 2010, just under US$50m short of what Sands China did with three properties, twice the number of tables, three times as many hotel rooms, and more retail and F&B space than the whole of the peninsula combined.

It helps when your win-hold in direct-VIP play is so good, we have to admit. And Steve Wynn, always the eccentric master of the conference call, made sure to point this out last night. But we also have to tip our hats to Wynn Macau president Ian Coughlan, who managed to squeeze a good chunk of change out of the non-gaming side of the business and who has pulled away from his rivals on the peninsula in the mass component of the gaming business, too. And all this while the junkets at the property were left smiling: rolling-chip volumes outgrew everyone else (except MGM, for obvious reason), up nearly 30% QoQ. That put its junket business at about half of mighty SJM’s and still 50% more than MGM’s despite its recent runup.

The question going forward is whether Wynn can get moving fairly soon on his Cotai project. He says he has verbal approval and is hoping to start work next month or in April. We thought this was the copyrighted trademark of his rival across town – announcing something related to government approvals as imminent – and so were somewhat surprised he said it, given that the previous prediction had been before the end of 2010. No government official likes to have his “verbal” approvals aired in public before his masters in Beijing have signed off on it. Anyway, we will just have to wait and see. Stay tuned.

Used with permission and copyright IntelMacau

There’s never a dull moment in this town as the Ho family saga reveals further twists and turns.

According to the latest report from SCMP, Billionaire Stanley Ho Hung-sun filed a lawsuit on Thursday morning accusing five of his children, two of his four mistresses and his long-time banker of “improperly and/or illegally” seizing control of the company that controls the bulk of his massive fortune.

Let’s start with the headline news item from the Citigroup review of Macau, which was sent out to media and appears to have been well covered by Macau Daily Times today: The Guangzhou-Zhuhai intercity railway is going to give Macau a big boost this year as more people visit more frequently. So hold on to your hats, folks, Gross Gaming Revenues will go up 25% year-on-year, largely as a result of this transportation improvement.

Err, sorry, beg to differ, your honor. We too are bullish on GGR prospects this year, but we think it will be primarily driven by rising GDP levels across the border and abundant liquidity in the junket system.

Perhaps we shouldn’t blame the Citi team. They were quoting a ridership survey which shows that 35% of respondents say they will visit Macau more frequently, as the travel time from southern Guangzhou to northern Zhuhai has been reduced from four hours to 90 minutes.

But perhaps we should. Anyone who has travelled between the two cities would know that four hours is how long it takes to get to Macau from, say, poor and remote Zhaoqing, not Guangzhou – even with rush-hour traffic in the city center. With traffic, it would be 2.5 hours max on a bus from downtown Guangzhou, let alone “southern Guangzhou”, which really means Panyu. Hands up anyone who has been to Panyu: it’s not exactly a densely populated district. People would have to take another bus or train to get there if they wanted to then travel from there to Zhuhai.

Anyway, geography quibbles aside, the real issue we have with anyone generating excitement about the Guangzhou-Zhuhai railway is that they tend to portray it as a non-stop bullet train. In fact, it is an extension of the Guangzhou MRT system, with multiple stops between the provincial capital and its sleepiest special economic zone. And worst of all, it terminates 45 minutes’ drive away from the Gongbei border gate linking Zhuhai to Macau. The extension to Gongbei is still being worked on and will likely open in a year’s time.

But get this: Citi believes the MRT will, in its current configuration, bring 1.5m people to Macau this year – half of which, the research house assumes, will have previously taken the bus. They have obviously never taken a bus from Guangzhou to Zhuhai. If they had, they would realize that the intercity bus system, which terminates directly underneath the Gongbei immigration hall, carries nearly all of Guangdong’s 1.1m visitors PER MONTH to Macau currently. The reasons are not hard to understand: in Guangzhou alone, there are three main stations scattered around the city, providing easy and convenient access to the city’s 20m-plus population. Now, consider how easy it is to take a taxi from your home, say 15 minutes away from the bus station, hop on the bus and arrive in Gongbei a couple of hours later, and contrast this with the hassle of getting a taxi to the MRT, changing lines to get down to Panyu, and then changing lines again to get on a multiple-stop railway down to Zhuhai, then get out and take another taxi or bus for 45 minutes to Gongbei. And did we forget to mention the buses are cheaper?

But wait, there’s more in the report that’s worth consideration. Due to this massive saving of time, Citi believes day-trippers will spend longer at the tables. If they had done the kind of research we have, they would know that there are two kinds of day-trip visitors to Macau: those that stay shorter than 24 hours, who actually spend an average of less than five hours in Macau, and those that stay longer than 24 hours but don’t go to a hotel. The difference between them? The former are those that donate quickly and generously to Sheldon Adelson’s campaign to climb the Forbes rich list, the latter are those that get on a winning streak. It is the inability to get across the border after midnight that separates these two groups, not whether the MRT is waiting for them 45 minutes away from the other side of Gongbei.

The Citi team didn’t get everything wrong where railways are concerned, however. They do point out the incremental benefit to be gained from the opening of the Wuhan-Guangzhou high-speed railway, which terminates in the vicinity of the Panyu MRT station, so people can get from central China to Guangzhou in around 3.5 hours, switch trains, and be in northern Zhuhai 90 minutes later. When this high-speed link is extended to Gongbei in a few years’ time it will indeed open Macau to a much larger hinterland of people who get on at one station and get off on the Macau border. And once Wuhan is connected to Beijing, visitation should grow further from the north.

Unfortunately, that’s not all we have to disagree with in the Citi report. It goes on to predict the future fortunes for each of the operators. Some of it we agree with, such as that Galaxy will be the biggest gainer of market share this year after its Cotai resort opens (how could it not be?) and that Sands should gain share once it eventually opens Lot 5&6 (Citi expects it next year). But the most contentious forecast is that for SJM, which Citi believes will lose market share this year and next. We think SJM has the stickiest customers of anyone in Macau, mostly because of the clan-based associations of its third-party casinos, but also because of the Grand Lisboa, which is busy building out more space for additional tables to keep up with demand.

What many analysts tend to overlook about SJM is the fact that it is fed by so many more cheap hotel rooms on the peninsula than the operators could possibly build in Cotai for many years to come. Galaxy certainly isn’t building any: its resort will open with 1,500 five-star rooms under its own management, plus another 700 by the elite brands of Banyan Tree and Okura. Even Lot 5&6 will be mostly five-star rooms. These will cater primarily to newer, longer-staying customers from further afield.

Anyway, we don’t mean to rain on Citi’s parade. Anil Daswani is a respected and thorough researcher, and it’s not easy to come up with the kind of bold predictions that gain your brokerage the kind of attention that could attract trading flows. So we empathize. We just don’t agree.

Used with permission & copyright IntelMacau