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Shares of Macau casino operators lost up to a third of their value on Wednesday, losing an estimated $ 18 billion, as the government launched a regulatory overhaul that could see its officials overseeing businesses in the biggest play center in the world.
With Macau’s lucrative casino licenses in preparation for a new offering next year, the plan has spooked a Hong Kong market already plunged into the red after Beijing’s regulatory crackdown on sectors ranging from tech to business. education and real estate which cut hundreds of billions of dollars in asset values.
Wynn Macau (1128.HK) led the plunge, dropping 34% to an all-time high, followed by a 28% drop for Sands China (1928.HK). MGM China Peers (2282.HK), Galaxy Entertainment (0027.HK), SJM (0880.HK) and Melco Entertainment (0200.HK) all fell sharply, bringing the drop to 143 billion Hong Kong dollars (18 billion dollars).
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A woman rests next to the decoration inside the Wynn Palace casino complex in Macau, China on December 20, 2019, on the 20th anniversary of the return of the former Portuguese colony to China. REUTERS / Jason Lee
U.S. casino companies also fell for the second day in a row, losing up to $ 4 billion in market capitalization on Wednesday, along with Las Vegas Sands Corp. (LVS.N) collapsing at over a year, Wynn Resorts Ltd (WYNN.O) and MGM Resorts International (MGM.N), falling by 8% and 5% respectively.
The crisis came after Lei Wai Nong, Macau’s economy and finance secretary, on Tuesday announced a 45-day consultation period on the gaming industry from the next day, highlighting shortcomings in industrial supervision.
Beijing, increasingly suspicious of Macau’s acute dependence on gambling, has yet to say how the license re-auction process will be judged.
“Margins will be crushed in the gambling capital of the world and that will bring about all the big casinos,” said Edward Moya, senior market analyst at OANDA in New York City.
Some Hong Kong stock analysts wereted no time in downgrading their take on the near-term outlook for Chinese special administrative region casino operators, all of whom must reapply for licenses when current licenses expire. in June 2022.
JP Morgan moves to neutral or underweight all Macau game names from the overweight, due to tighter scrutiny of capital management and day-to-day operations ahead of license renewals, analyst said DS Kim.
“We admit that this is only a ‘directional’ signal, as the level of regulation or enforcement remains a moot point,” he said, adding that the news would have already cast doubt on the issue. mind of investors.
Brokerage CFRA downgraded Wynn Resorts to “Strong Sell” instead of “Buy”, citing increased regulatory risks and said the review was a major overhang for the company as well as other operators.
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At a press briefing on Tuesday, Lei detailed nine areas of consultation, such as the number of licenses, better regulation and the welfare of employees, as well as government officials to oversee the daily operations of the casino.
The government also plans to increase voting shares in game dealerships for permanent residents of Macau, as well as more rules on the transfer and distribution of profits to shareholders.
Discussions over the future of Macau casino licensing come against the backdrop of rocky relations between the United States and China, leaving some investors fearing an advantage for domestic players over US-based casino operators.
The government has not identified any American actor, but the companies have decided to strengthen the presence of Chinese or local executives because they are positioning themselves more as operators from Macao than as foreign operators.
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Before the license expired, operators attempted to strengthen corporate accountability and diversify into non-gaming offerings to appease Beijing, which fears over-addiction to gambling.
Macau has stepped up surveillance of casinos in recent years, cracking down on illicit capital flows from mainland China and targeting clandestine lending and illegal money transfers.
Beijing has also escalated the war on cross-border gambling cash flows, affecting the funding of Macau’s junket operators and their VIP customers.
In June, Macau more than doubled the number of gaming inspectors and restructured its services to strengthen supervision.
George Choi, analyst for Citigroup in Hong Kong, said that while the public consultation document gave few details, the suggested changes benefited long-term sustainable growth, with “positive implications for the six casino operators.”
However, he warned, “we will not be surprised if the market focuses only on the potentially negative implications, given weak investor sentiment.”
The consultation comes as Macau has grappled with a shortage of travelers due to coronavirus restrictions since early 2020. While gaming revenue has grown in recent months, it remains below half of 2019’s monthly figures .
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Additional reports by Donny Kwok, Shreyasee Raj, Kannaki Deka and Shreyashi Sanyal; Editing by Anne Marie Roantree, Clarence Fernandez and Arun Koyyur
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