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Casino shares lose $ 20 billion as Macau’s government seeks greater oversight

Gaming industry updates

The Macau government’s efforts to increase casino oversight wiped out more than $ 20 billion in market value for listed gaming operators, as analysts warned that strict rules could push margins already strained by the Covid-19 pandemic.

Shares in Sands China fell 32.5 percent, Wynn Macau fell 29 percent and rival MGM China lost nearly 27 percent in Hong Kong on Wednesday. SJM Holdings lost 24 percent while Melco International and Galaxy Entertainment fell 20 percent each.

The losses left the Bloomberg Intelligence Macau Gaming Composite Index, which tracks the city’s listed casino operators, down 23 percent at the close of trading, marking the meter’s worst result for a record day.

The news also affected shares in many of the group’s parents in the United States. MGM Resorts International fell 4.6 percent in late morning trading, Las Vegas Sands fell 3.9 percent, while Melco and Wynn fell 12.9 and 8 percent, respectively.

The price reductions came when Chinese territory began a 45-day public consultation on the revision of the gaming law, which is expected to increase control of operators in the world’s largest gambling. Casino groups’ 20-year concessions to operate in Macau will expire next year.

The authorities’ decision to tighten control over casinos also continues when Beijing embarks on one broad campaign to reshape the country’s business, political and cultural landscape in order to curb inequality and promote “cultural prosperity”.

Chinese regulators have set strict conditions for the country’s largest companies in technology, online education and video games, and the authorities have focused on it. social behaviors perceived as harmful.

“It will keep casinos more down to earth and adapt Macau casino operations closer to the concerns of the government and society,” said Desmond Lam, associate professor of gaming management at the University of Macau.

Line chart of Bloomberg Intelligence Macau Gaming Composite index showing Macau casino bases declining ahead of major oversight

A draft law indicates that the government planned to add its own representatives to the boards of casinos holding concessions in Macau, sole jurisdiction in China where gambling is legal.

The law is also expected to cover the number and duration of concessions for casino operators, giving the authorities a significant leverage effect over China’s largest employers and main driver of economic growth.

Casino operators have also been significantly weakened of the pandemic, which swept the vital flow of mainland Chinese tourists to the city.

Gross gaming revenue drops about 80 percent from pre-pandemic levels, according to figures published by the Macau Gaming Inspection and Coordination Bureau.

The proposed law is also expected to examine “junkets”, a sub-sector of the gaming industry that attracts high rollers from the mainland and gives them credit in Macau.

This could hamper VIP revenues, which have been slowly declining as a percentage of the casino’s revenues since President Xi Jinping’s signature on antitrust activities began almost a decade ago.

But Alidad Tash, a former casino manager at gaming consultant 2nt8 Limited, said that stuffed rubbish would have greater consequences due to. China’s capital controls, which prevents citizens from bringing large sums into Macau.

“The highly profitable premium mass segment relies on junkets to lend capital to those coming over from China,” he said, predicting that Wynn and SJM would be among the most affected by VIP package restrictions.

JPMorgan downgraded all six Macau casino operators to underweight or neutral on Wednesday.

“We believe that this announcement had already planted a seed of doubt in the minds of investors, which is probably enough to devalue these names until clarity emerges on key points,” JPMorgan analyst DS Kim wrote in a note.

However, some observers remained confident about the potential changes. George Choi at Citi acknowledged that markets may have a weak view of the latest announcement, but claimed that “all proposed changes [of the law] exists to strengthen long-term sustainable growth ”.

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