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Contributed By: Kate O'Keeffe

Macau Gambling Revenue Rose 42% Last Year

HONG KONG—Macau gambling revenue rose 25% last month from a year earlier, capping off a strong year fueled by players from mainland China despite concerns about tighter credit or an economic slowdown there.

Gambling revenue in Macau soared 42% last year to a record 267.87 billion patacas (US$33.48 billion). The Chinese territory, the only place in China where casino gambling is legal, remains the largest gambling center in the world. Its revenue is more than five times what analysts forecast for the Las Vegas Strip or Singapore.

Gambling revenue rose to 23.61 billion patacas last month, up from 18.88 billion patacas a year earlier, according to the territory's Gaming Inspection and Coordination Bureau.

Macau's gambling industry has been on a tear since the end of 2009, despite China's measures to tighten credit and local government policies aimed at slowing economic growth.

The blistering pace of gambling growth in 2011 "came as a surprise to most investors," said CLSA analyst Richard Huang.

Investors enjoyed handsome gains. Shares of Galaxy Entertainment Group Ltd., which opened its enormous flagship Galaxy Macau casino in May, rose 62% last year, while those of Melco International Development Ltd. rose 30%. Shares of Sands China Ltd., the Macau unit of Las Vegas Sands Corp., jumped 29%. The gains contrasted with a 20% decline in Hong Kong's benchmark Hang Seng Index last year.

Analysts believe the outlook for this year isn't as rosy and expect growth to slow, in part because of last year's strength.

They cite concern over whether the recent explosive growth in VIP gambling, which accounts for nearly 75% of all gambling revenue in Macau, can be sustained. The VIP market is driven by junket operators, which bring high-spending gamblers to the casinos, issue them credit and collect debts in exchange for commissions. Since gambling debt isn't recognized in China, there are no legal means for casinos to recover debts owed to them by Chinese players. But little is known about junket operations. Their capital positions "aren't as strong as the street believes," Wells Fargo analyst Cameron McKnight wrote in a recent report. A "modest decrease in VIP junkets' working-capital efficiency, which is very likely in a slowdown scenario, could eliminate the majority of junkets' surplus capital," he wrote.

Macau government limits on the number of gambling tables also will constrain growth in VIP gambling, he said.

Mr. McKnight forecast that Macau gambling-revenue growth would slow to 11% this year.

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