Speaking at a roundtable in Sydney yesterday, Mr Kiesel – who doubles as Pimco’s global head of corporate bond portfolio management – said Pimco owns debt in four Macau-based companies.
The ‘mass market’ Macau gambling market is growing at 30 per cent, and the overall $60 billion gaming market on the island (including VIPs) is growing at around 15 per cent, said Mr Kiesel.
“They’ve got 25,000 [gaming] rooms. Las Vegas has 100,000 rooms, and it’s one seventh the size,” he said.
“So that to us looks very promising, particularly when you factor in that the government’s pouring in tens of billions of dollars in infrastructure to try to make it easier for the Chinese population to tap into Macau.”
One thing that makes Macau-based casinos attractive is the high barrier to entry, he said. The Chinese government has only issued six gambling licences on the island.
The ‘cash on cash’ return for a two or three billion dollar investment in a Macaue casino is about 30 per cent, said Mr Kiesel.
“There are only a handful of licences, and if you get one you’ve won the lottery,” he said. “We find the entire capital structure cheap. We’re earning rates of 5 to 5.5 per cent on these bonds.”
The reason Macau debt is cheap at the moment is because people are “concerned about China”, he added.
It is wise for investors to avoid emerging markets unless they understand the role of government, according to Mr Kiesel.
