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Crackdown on illicit transactions in Macau causes share prices to plummet

Maca

Macau
u authorities have announced a crackdown on illegal money transfers, triggering the biggest decline in share prices among leading operators in more than two years.

China will be clamping down on the use of hand-held card-swipers within casino resorts due to concerns that tens of millions of yuan in illicit funds are being funnelled out of the mainland and into Macau, the South China Morning Post reported today.

Worries among investors that this could quell demand have lead to a slump in share prices with operators such as Wynn Macau falling 8.5% ̶ the firm's biggest decline since October 2011.

Macau officials and China's state-backed bank payment card UnionPay have announced a series of measures as part of the anti-corruption drive that hopes to prevent unauthorised dealings, the circumvention of currency controls, money laundering, capital flight and other illicit activities.

The South China Morning Post quote John Bruce, Macau director of risk consultancy Hill & Associates, as saying that underhand methods are used in Macau because "mainland gamblers cannot get enough money to gamble".

Tourists from mainland China can legally bring 20,000 yaun into Macau and withdraw up to 10,000 yaun per day to be exchanged for local currency. However Reuters report that up until two years ago Macau was earning over 70-80% of its revenue from high rollers who wager a minimum of 1 million yuan per bet.

More recently however these high rollers have been overtaken by "mass market" visitors who use the bogus UnionPay transactions to get more cash outside of the daily limit.

Gamblers can purchase items from Macau's pawn shops using debit cards such as UnionPay and exchange them for local currency. Often items don't need to be purchased at all and unauthorised exchanges appear as domestic transactions, described by store clerks as a "general sale".

Touts operating on Macau's casino floors also offer gamblers cash from UnionPay credit cards using point-of-sale machines brought in from the mainland.

There will now be a crackdown on the illegal flow of mobile UnionPay payment devices and other point-of-sale terminals into Macau, while high-risk merchants will be shut down and abnormally large transactions closely monitored.

Visa controls could also become more stringent from July after state broadcaster China Central Television reported on visitors entering Macau and Hong Kong on transit visas to gamble.

Visitors who don't travel on to a third-party country could receive a stamp on their passport, possibly causing problems for them when trying to get a visa in future.

Reuters report that this has been happening for over a decade but say the recent exposé could lead to stricter measures.

Similarly, Macau police have already carried out a number of raids in and around casinos, making arrests and seizing devices and cash. However the South China Morning Post report that the problem is now too significant for central government to overlook.

Official figures for Macau gaming revenue stood at $45bn last year, but analysts have said that as much as $90bn could have gone unreported.

Bloomberg report that Karen Tang, an analyst from Deutsche Bank AG in Hong Kong, wrote in a note to clients that illicit funds obtained using such methods amount to an estimated $6bn, or about 12% of Macau's annual mass-market chips purchased.

A decline of that size would cut earnings before interest, taxes, depreciation and amoritization for the six largest casino operators in Macau by between 2% and 6%, with Melco Crown and MGM China being the worst affected, Tang continued.

Grant Govertsen, a Macau-based analyst at Union Gaming Group, also told Bloomberg that "investors are now very jittery".

Shares in Macau gaming companies on the Hong Kong stock exchange plummeted as a result. Galaxy Entertainment fell 7.6%, MGM China 8.3%, Sands China 4.6% and Melco Crown 6.2%.

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