Macau casino shares plummet as government launches consultation

Shares of Macau casino operators have plummeted by as much as a third, losing about $ 14 billion in value, as the government launched a public consultation that investors fear will lead to stricter regulations at the most gambling center. biggest in the world.

With Macau’s lucrative casino licenses to re-bid next year, a government proposal to revise the city’s gambling law spooked a Hong Kong market that has already been crashed into the red by extensive regulatory crackdown from Beijing. , in every sector, from technology to education to property, which has been cut hundreds of billions of dollars off the value of assets.

Wynn Macau led the fall, falling as much as 34 percent to a record low on Wednesday, followed by a 28 percent drop for Sands China. The MGM China, Galaxy Entertainment, SJM and Melco Entertainment pairs fell sharply, taking the drop to 109 billion Hong Kong dollars ($ 14 billion).

The drop came after Lei Wai Nong, Macau’s economy and finance secretary, on Tuesday night notified a 45-day consultation on the gaming industry starting Wednesday, saying there were still some shortcomings in oversight of the industry. The enclave is the only place in China where gambling is legal. Among the issues to be discussed: how many licenses, known locally as “concessions,” will be allowed, how long their terms will last, and the level of supervision by the government.

While license renewals have been expected for some time, as the current ones expire next June, the move to tighten regulatory control took the industry by surprise. In addition to appointing government representatives, the reviews also propose increasing the local holdings of casino companies, without giving details on how these measures will be implemented.

Beijing, increasingly wary of Macau’s acute reliance on gambling, has yet to indicate how the license bidding process will be judged.

Dismay spread through industry actors and analysts after the announcement, as China’s ongoing crackdown on sectors from gaming to after-school tutoring appears to have finally reached Macau.

Some Hong Kong stock analysts wasted little time lowering their views on the short-term outlook for casino operators in the China Special Administrative Region. Everyone must bid again on licenses when current permits expire in June 2022.

At JP Morgan, analyst DS Kim said the bank was downgrading all Macau gaming names from overweight to neutral or underweight due to increased scrutiny on capital management and day-to-day operations ahead of license renewals. .

“We admit that it is just a ‘directional’ signal, while the actual regulation / enforcement level remains a moot point,” he said, adding that the announcement would have already planted a seed of doubt in investors’ minds.

Greater regulation

In a press conference on Tuesday, Lei detailed nine areas for consultation, including the number of licenses to be granted, increased regulation and protection of employee welfare, as well as introducing government representatives to oversee the daily operations in casinos.

Discussions about the future of Macau casino licensing come amid difficult US-China relations, causing some investors to fear that US-based casino operators are not fare as well as to local players.

The government has not singled out any US players, but there has been a push within companies to reinforce the presence of Chinese or local executives to position themselves more as a Macau operator than a foreign one.

Before the licenses expire, operators have tried to strengthen their corporate responsibility and diversify into offerings other than games to allay Beijing’s fears of over-reliance on gambling.

Macau has greatly stepped up scrutiny of casinos in recent years, with authorities cracking down on illicit capital flows from mainland China and tackling clandestine loans and illegal cash transfers.

Beijing has also stepped up its war against cross-border gambling fund flows, affecting the funding channels of Macau’s travel operators and their VIP casino customers.

In June this year, Macau more than doubled the number of gaming inspectors and restructured several departments to increase supervision.

George Choi, an analyst at Citigroup in Hong Kong, said that while the public consultation document offers limited details, the suggested revisions enhance long-term sustainable growth for the industry with “positive implications for all six casino operators.”

However, he cautioned that “we will not be surprised if the market focuses only on the potentially negative implications, given weak investor sentiment.”

The query comes as Macau has struggled with a shortage of travelers due to coronavirus restrictions since early 2020. While gaming revenue has recovered in recent months, it remains on less than half of the trips. 2019 monthly.

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