Tuesday, February 19, 2013

Goldman Upbeat as Casino Bonds Withstand Crackdown

Goldman Sachs Asset Management says Macau casino bonds that have rallied for 16 months are likely to withstand any crackdown aimed at cleaning up the industry.
Melco Crown Entertainment Ltd.’s 8.5 percent dollar notes due December 2020 rose every week this year for a 5.9 percent return, with the yield touching a record-low 6.84 percent on Feb. 14, data compiled by Bloomberg show. The yield on Galaxy Entertainment Group Ltd.’s 4.625 percent yuan securities reached 3.48 percent yesterday, the least since they were sold in December 2010. Casino stocks plunged the most since July after the Times of London reportedon Feb. 5 that a crackdown on triad-linked junket operators was imminent.
Casino revenue in Macau rose 13 percent to $38 billion in 2012. Photographer: Lam Yik Fei/Bloomberg
“Previous cooling and policy measures have generally been positive to the long-term health of the market,” Salman Niaz, a bond-fund manager in Singapore at Goldman Sachs Asset, said in a Feb. 15 e-mail interview. “Given the high free-cash flow generated by the operators and the limited leverage, the credit profile is unlikely to deteriorate materially in the near term.”
Record-low borrowing costs will help tycoons fund more than $16 billion of expansion plans in the world’s biggest gambling hub. Melco Chief Executive Officer Lawrence Ho, son of the city’s former gaming monopoly holder Stanley Ho, said this month he hadn’t heard of any crackdown and that his casinos were “jam packed” over last week’s Chinese New Year holiday. Billionaire Lui Che Woo’s Galaxy also had 100 percent occupancy.

Adelson, Wynn

Asian casino notes rose every month since September 2011 to a record on Jan. 31, according to an index compiled by Credit Suisse Group AG, and outpaced U.S. counterparts in January by the most since May.
The former Portuguese colony ended Stanley Ho’s 40-year monopoly on gambling in 2002, and by the end of last year it played host to 35 casinos, according to government statistics. The Hong Kong units of companies controlled by Sheldon Adelson and Steve Wynn currently have plans to invest $6.6 billion on new gaming tables and hotel rooms in the city.
Casino revenue in Macau rose 13 percent to $38 billion in 2012, according to data published by the Gaming Inspection and Coordination Bureau, compared with $6.2 billion of takings on the Las Vegas strip. CLSA Ltd. forecasts annual revenue in the former colony will reach $100 billion by 2020.

‘Substantial Expansion’

“The Macau businesses are highly cash generative and there’s a substantial expansion in tables et cetera underway,” Edmund Harriss, London-based investment director at Guinness Atkinson Asset Management, said in a Feb. 14 interview. “Crackdowns are part and parcel of the industry. As a bondholder, I see the businesses as attractive.”
Guinness manages $436 million of assets and owns Galaxy’s yuan-denominated notes, Harriss said. Goldman Sachs Asset Management oversees $854 billion globally, including emerging- market debt funds that hold Melco’s Chinese-currency bonds, according to data compiled by Bloomberg.
As middlemen and moneylenders, junket operators help bring high-rollers to Macau, who account for 70 percent of casino revenue. China will clamp down on the operators after the Lunar New Year, the Times reported. Police detained people from at least three of the biggest junket companies in December, the Wall Street Journal reported in December.
“We haven’t heard anything like that,” Melco CEO Lawrence Ho said on a conference call on Feb. 6. “We continue to be very positive. This year is definitely going to be better than last year.” Galaxy, Sands China Ltd., and MGM China Holdings Ltd. all declined to comment when contacted earlier this month.

‘Headline Risks’

Macau’s government will strengthen its licensing system for junket operators and work with law enforcement to tackle gambling-related crimes, Francis Tam, secretary for economy and finance, said on Feb. 7.
“While crackdowns have resulted in headline risks, these have only moderately restrained the fundamental story,” Kevin McSweeney, a Toronto-based fixed-income manager at CI Investments Inc., which manages $74 billion of assets including casino bonds, said in an e-mail today. “Macau is an ever- growing hub. While equities are subject to growth risk, cash flow at these levels of gaming supply is excellent and pricing power should provide a tailwind.”
China’s new leadership led by incoming president Xi Jinping takes over in March, after pledging to cut lavish spending and fight corruption. A crackdown on Macau junket operators can’t be ruled out, Lantis Li, a Hong Kong-based gaming analyst at Capital Securities Corp., said in an interview yesterday.

Visitors Surge

Macau received 994,192 visitors during the Golden Week holiday from Feb. 10 through Feb. 16, with mainland Chinese accounting for two-thirds of them, according to data published by the tourist office on its website. The total represents a 21 percent jump from same holiday in January last year.
“The trends on the ground are very strong, certainly with the mass market,” said Grant Govertsen, a Macau-based analyst at Union Gaming. “Visitations and gaming levels are robust.” Revenue will climb to as much as $44 billion this year, he said in a Feb. 15 interview.
The cost of insuring Chinese sovereign bonds against non- payment using five-year credit-default swaps dropped four basis points this month to 65 in New York yesterday, according to data provider CMA. It touched 72 basis points on Feb. 4, the highest since October. The contracts pay the buyer face value in exchange for the underlying securities should a borrower fail to adhere to its debt agreements.


  1. Lots of wailing & gnashing of teeth over on the PM blogs this morning.

    Funny that when the price drops there is always a lot of mean sniping & bickering.

    Hey guys - it's a commodity, not a religion! Sheesh...

  2. A comment the other day from Taxhaven stuck in my mind. He wrote something about the economy on Vancouver island.

    Something to the effect that those folks who work in the forest products industry and the ones who either work for the govt. or are sucking on the govt's tit, are the only folks who are surviving & still able to spend money in this ritten economy.

    Everybody else seems to be struggling. This pretty much sums it up for those of us who live on the west side of Puget Sound. Since I am employed, I have little to really complain about; a lot of other folks around here are really hurting.

  3. Lots of wailing & gnashing of teeth over on the PM blogs this morning...

    You've got that right.

  4. BTFD!

    If you have a job and any spare money, that is. Which might explain why the average Jo isn't all that interested in what's happening with the PM market. About as much relevance to them as the best hotel to stay in in Macau.

  5. I find that hard to believe. Shouldn't they be worried about Michelle's mid-life crisis? I mean, she has bangs now, don't ya know. This and Obama playing golf should be what takes up everyone's thought process.

    Oh, and American Idol, of course.

  6. Chicken Little, no need to be so cynical just because the plunging PM prices have got you down.

    (Just kidding)

    This would be a good opportunity to pick up some round Silver discs if you are inclined to give them away as Christmas presents.

  7. As far as Macau goes, it brings to mind the problem gamblers I've seen in the psych ward. We had one recently who blew money in Macau, and other places, during a manic phase. Asians gravitate toward there the way that Anglos (and a lot of Asians) aim for Las Vegas. When the mania wears off, and they see the debts they've incurred and other damage they've done, they get suicidal. I have a jaded view of gambling, though, because I only encounter the gamblers who have wrecked their lives. I'm sure there are tens of times more who keep their losses to a slow, controlled burn rate.

    I read about the "crackdown" on "junkets" -- i.e. leading sheep to be fleeced -- run by the triad gangs. And I read between the lines of the guy saying "in spite of past crackdowns, gamblelife goes on." What that tells cynical me is that the "crackdown" only applies to the gangs that are out of favour, or who have not paid off the right official. Those triads get cracked down upon. It's the government acting as the biggest thug in town. The Chinese .gov, or whatever faction of it controls the Macau racket, can't be bothered with the small stuff of busing cash cows into town. Instead, it collects "rent" by skimming the crooks who fill the buses. All enforced by the government's monopoly on using force, the local police's muscle to bust non-approved junketeers.

    And the local .gov which collects vigorish from the triads probably has to pay bribes on up the line to higher-level government crims. It worked the same way for government favours in the early Byzantine Empire, based on what I read in "Decline and Fall of the Roman Empire Vo. II." Probably no different in the Egyptian and Sumerian civilizations, either. Layer upon layer of leeches, all dependent on the lost wages of the average Zhou in China. Good thing there's a lot of suckers! Otherwise, the government would fall apart.

  8. Boss is away this week, so Yours Truly gets to sit in on the two daily manager's meetings here at the Paper Mill.

    And what was discussed? The #2 Mgr talked about the need to conserve energy. "Oil is just killing us and we are barely hanging on."

    Now, THAT does not exactly give me a case of the warm fuzzzies, as far as the Mill staying in business!

    In lighter news, it seemswe have a bunch of excess pink paper. Some is too light, and some is too dark. Spent ~5 minutes discussing this.

    There's always a light side (or a pink side) to any sad tale. LOL!

  9. Bukko I am one of those gambler's that maintains control. I have backed off recently and cashed out at a near break even +20.00 after having gambled upwards of 100.00 a day on sports with the same money for more than a year.

    Intermittent reinforcement is one of the hardest behaviors to break. It can be worse than alcohol or drug addiction. Those castles in LV and Macau were built by losers.

    Just as the stock market and Forex can be just as addictive. Long term the winners are the brokerage firms, money managers and anyone associated with the skim. They win as long as they have players in the game. There are probably some dubious statistics that say 10% of investors come out ahead in the long run. What is the long run and how much do they come out ahead?

    As for those who cry when the price of PMs go down the hell with them they are big babies. Sell and stop crying. They don't understand the ebb and flow of money. GS, JPM, BAC, Citi, Morgan Stanley they get it and they still had to be bailed out. They will do it again because they have no downside. The Fed backstops their losses.

    It's the old saying the best way to rob a bank is to own one. "Give me control of a nations money supply, and I care not who makes it’s laws"

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