Singapore makes tentative changes as casino earnings slow

2012-04-04

Reading time 1:32 min

(Singapore).-Singaporean bet on junkets is a booster shot for the slowing growth of its nascent gambling industry, but for investors, a big payout is not guaranteed. The city's two casinos - Genting Singapore's Resorts World Sentosa and Las Vegas Sands’ Marina Bay Sands, which both opened in 2010 - saw blowout growth in their first year of operations, generating more than us$ 6 billion in gross gaming revenue in 2011.

Recently though, quarterly results have missed analysts' forecasts. Competition from regional casino rivals in the Philippines and Vietnam hasn't helped. Nor has slower economic growth. Genting's stock is 27 % off its 2011 peak.

Junkets may provide some of the answer. The junket operators are middlemen who bring high-spending gamblers to the tables, issue credit and collect on debts in exchange for commission.

In Macau - the world's biggest gambling hub by revenue - the junket system has been a lucrative linchpin of the gaming industry. High-rollers in the Chinese territory accounted for about three-quarters of all gambling revenue last year.

Previously, straight-laced Singapore demurred on junkets operating outside the regular controls of the casino operators. Junkets are sometimes the focus of compliance concerns. Regulators have snubbed 12 applicants for junket licenses in the past two years.

Last week, however, authorities issued two licenses to agents working with Genting.
Investors have pushed Genting's share price more than 6 per cent higher since the announcement. But there's not enough clarity yet to forecast what junkets will do for the bottom line.

For starters, the two new licenses went to operators from Malaysia who may lack access to big-spending gamblers from China - the most coveted market. Also, other rules introduced last week banned commission sharing, which could have facilitated collaboration between Singapore- and Macau-based junket operators.

Most importantly, Singapore has no plans to become a gambling hub like Macau. The country allowed the casinos to help its tourism bona fides and boost its services sector. But it still keeps a lid on their activity with entry levies on Singapore citizens and permanent residents, social programs discouraging heavy gambling, and bans on casino promotions and advertising targeting locals.

So while two new licenses are a start, further junket approvals could come at a snail's pace. Investors have cheered Singapore's first moves to allow junkets. But it's worth exercising caution before betting on more to come.