The South China Morning Post, a newspaper owned by Jack Ma, the founder of Alibaba (NYSE:BABA), reported that the "resort entertainment" voucher scheme at Marina Bay Sands, a Las Vegas Sands Corporation (NYSE:LVS) property in Singapore, is apparently being run in violation of China's strict outbound currency control laws. After being informed of the program by the newspaper, Xie Zhong, the director of the payment settlement department at the central bank in Beijing, responded that the bank cards of China UnionPay "should certainly not be used in casinos."
While the report by The South China Morning Post did not specify the amount of revenue generated by the scheme, another source stated that the scheme has contributed to "hundreds of millions of dollars" flowing from China to Singapore. It did not elaborate if the amount was cumulative from the launch of the program in February 2015, or some other time period.
Admission by Las Vegas Sands
Las Vegas Sands bravely admitted to the existence of the program.
The resort entertainment voucher program at Marina Bay Sands was designed to give guests increased flexibility in purchasing a variety of goods and services. We are pleased to be part of the UnionPay network, which allows Chinese consumers to purchase goods and services at locations in countries around the world. Marina Bay Sands operates the resorts entertainment voucher program in accordance with the terms and conditions of China UnionPay cards. We look forward to continuing to offer this amenity.
- Ron Reese, senior vice-president of global communications and corporate affairs for the Las Vegas Sands Corporation
On the other hand, the city state's gaming watchdog, the Singapore Casino Regulatory Authority, was evasive. The South China Morning Post reported that the government body refused to comment "despite being asked three times to do so." Interesting, the other protagonist in the crosshair, China UnionPay, also chose not to respond to questions about the program.
New Restrictions in Macau Already a Done Deal
This latest development comes hot on the heels of new restrictions imposed on UnionPay and other ATM withdrawals from December 10 supposedly based on instructions from Beijing. China has embarked on a series of measures to tighten its capital controls as it battles depreciation pressure on the yuan. According to Bloomberg, after the US market opened following the news, "Wynn Resorts Ltd. fell as much as 12 percent, Las Vegas Sands Corp. dropped 13 percent and MGM Resorts International sank 4.3 percent. Melco Crown Entertainment Ltd. plunged 14 percent." The limits on ATM withdrawals was the latest of setbacks to afflict the casino industry in Macau which prior to August 2016, suffered 27 consecutive months of gross gaming revenue (GGR) decline largely attributed to the Chinese government's anti-corruption crackdown.
Marina Bay Sands, the Second Largest EBITDA Contributor Under Threat
Marina Bay Sands contributes one-third of the total EBITDA. On average, Marina Bay Sands has a 34.2% share of the total EBITDA in the past five quarters. With the Macau operations under siege, the property in Singapore seems unlikely to come to the rescue of the parent company. If Beijing decides to formally pursue the capital flight loophole that the voucher program has been exploiting, the revenues at Marina Bay Sands would inevitably take a hit. It is no secret that the Chinese are the largest customer base for the Singapore property. Singapore was ranked seventh on the list of the top destinations for Chinese tourists, according to a report by the China Tourism Academy. Based on data from the Singapore Tourism Board, 1.47 million Chinese nationals visited Singapore in the first half of 2016, an increase of 55.2% from the same period last year, accounting for nearly 18% of the visitors to Singapore during the period, making Mainland China Singapore's largest single tourist source market.
Investors Shrugging Off Revenue Miss at Macau Operations
On January 3, the share price of Macau casino stocks retreated as gambling revenue growth came in at 8% in December against consensus estimates at 9%. Sands China (OTCPK:SCHYY) has recovered somewhat in the past couple of days, while investors in Las Vegas Sands appeared to be nonplussed over the revenue miss.
The operating landscape has improved considerably since sentiment recovered in early 2016. However, with a 58% appreciation in the share price from the 52-week low, it is likely already priced in. Going forward, caution is advised, based on the above mentioned capital controls by a government apparently eager to stem the sharp depreciation in the renminbi.
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