Billions of dollars blown away as Macau casino investors fold amid gambling review

HONG KONG, Sept. 15 (Reuters) – Shares of Macau casino operators fell by a third on Wednesday, losing about $ 14 billion in value, as the government launched a regulatory overhaul that could see its officials oversee the world’s largest gambling companies. hub.

With Macau’s lucrative casino licenses set for a new offering next year, a government proposal to revise the city’s gambling law has spooked a Hong Kong market already hit hard by a massive regulatory crackdown on Beijing, in industries ranging from technology to education to real estate, which has sliced ​​hundreds of billions of dollars off asset values.

Wynn Macau (1128.HK) led the plunge, dropping 34% to a record low, followed by a 28% drop for Sands China (1928.HK). Peers MGM China (2282.HK), Galaxy Entertainment (0027.HK), SJM (0880.HK) and Melco Entertainment (0200.HK) all fell sharply, taking the decline to HK $ 109 billion (14 billion dollars).

The crisis came after Lei Wai Nong, Macau’s economy and finance secretary, announced a 45-day consultation on the gaming industry on Tuesday evening from Wednesday, saying there were still gaps. in the supervision of the industry.

Beijing, increasingly suspicious of Macau’s acute gambling addiction, has yet to say how the license re-auction process will be judged.

Some Hong Kong stock analysts wereted no time in downgrading their views on the near-term outlook for casino operators in China’s special administrative region. All are required to re-offer licenses when current licenses expire in June 2022.

At JP Morgan, analyst DS Kim said the bank is demoting all Macau game names from overweight to neutral or underweight due to a thorough review of capital management and day-to-day operations ahead of renewals. licenses.

“We admit that this is only a ‘directional’ signal, as the level of regulation / enforcement remains a moot point,” he said, adding that the announcement would have already sown. doubt in the minds of investors.

MORE STRENGTHENED REGULATIONS

At a press briefing 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 the presentation of government officials to oversee operations. daily casinos. Read more

The government is also proposing to increase the voting shares of permanent residents of Macau in game dealerships, as well as additional rules on the transfer and distribution of profits to shareholders.

Discussions over the future of Macau casino licensing come amid rocky U.S.-China relations, leaving some investors concerned that U.S.-based casino operators will fare as well as local players.

The government has not identified any American actor, but there has been a push within companies to strengthen the presence of Chinese or local executives in order to position themselves more as a Macau operator rather than overseas.

Before the licenses expired, operators attempted to strengthen their corporate responsibility and diversify into non-gaming offerings to allay Beijing’s fears of over-gambling addiction.

Macau has significantly tightened casino controls in recent years, with authorities cracking down on illicit capital flows from mainland China and targeting clandestine lending and illegal money transfers.

Beijing has also intensified a war on cross-border flows of gambling funds, affecting the funding channels of Macau’s junket operators and their VIP casino customers.

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

George Choi, analyst at Citigroup in Hong Kong, said that although the public consultation document offered limited details, the suggested revisions improve the long-term sustainable growth of the industry with “positive implications for the six casino operators.”

He warned, however, that “we will not be surprised if the market focuses only on the potentially negative implications, given the weakness of 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 increased in recent months, it remains at less than half of the monthly journeys of 2019.

($ 1 = 7.7783 Hong Kong dollars)

Additional reporting by Donny Kwok; Editing by Anne Marie Roantree and Kenneth Maxwell

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