Macau casino operator’s shares have fallen by as much as a third and lost about $ 14 billion in value, when the government launched a public consultation that investors fear will lead to stricter rules in the world’s biggest gambling.
With Macau’s lucrative casino licenses for rebid next year, a government proposal to revise the city’s gambling law came as a shock to a Hong Kong market that was already hit hard by a broad crackdown on Beijing, between sectors from technology to education and real estate, which has cut hundreds of billions dollars of asset values.
Wynn Macau led the way, dropping as much as 34 percent to a record low on Wednesday, followed by a 28 percent tumble for Sands China. Peers’ MGM China, Galaxy Entertainment, SJM and Melco Entertainment all fell sharply, bringing the reduction to Hong Kong’s $ 109 billion ($ 14 billion).
The decline came after Lei Wai Nong, Macau’s secretary of economics and finance, announced late on Tuesday a 45-day consultation on the gaming industry that began on Wednesday, saying there were still some shortcomings in the industry’s oversight. The enclave is the only place in China where gambling is legal. Among the topics covered: how many licenses – locally known as “concessions” – will be allowed, how long the conditions will be and how much government supervision is.
While license renewals have been expected for some time when the current ones expire in June next year, the transition to stricter regulatory control took the industry by surprise. In addition to appointing government representatives, the revisions also propose increasing local shareholdings in casino companies, without elaborating how these measures will be implemented.
Beijing, increasingly wary of Macau’s acute dependence on gambling, has not yet indicated how the process of revoking licenses will be assessed.
Destruction flowed through industry players and analysts following the announcement that China’s ongoing breakdown of sectors from gaming to education after school seems to have finally reached Macau.
Some Hong Kong stock analysts were wasting some time downgrading their views on the short-term outlook for casino operators in China’s special administrative region. Everyone must revoke licenses when the current permit expires in June 2022.
At JP Morgan, analyst DS Kim said the bank downgrades all Macau game names from overweight to neutral or underweight due to increased scrutiny of asset management and day-to-day operations prior to license renewals.
“We recognize that this is only a ‘targeted’ signal, while the level of actual regulation / execution is still an important point,” he said, adding that the announcement would have already cast a seed of doubt in investors’ minds.
At a news briefing on Tuesday, Lei outlined nine areas for the consultation, including the number of licenses to be granted, increased regulation and protection of employee welfare, as well as presenting government officials to oversee the day-to-day operations of casinos.
Discussions about the future of Macau’s casino licenses come amid rocky US-China relations, prompting some investors to fear that US casino companies may not be doing as well as local players.
The government has not identified any US players, but there has been pressure within companies to strengthen the presence of Chinese or local executives to position themselves more as a Macau operator rather than a foreign one.
Prior to the expiry of the license, the operators have tried to strengthen their corporate responsibility and diversify into offers that are not games in order to calm Beijing’s fears of over-dependence on games.
Macau has intensified its scrutiny of casinos in recent years, with authorities forcing illegal capital flows from the mainland and tackling underground loans and illegal cash transfers.
Beijing has also intensified its war on cross-border flows of gambling money, affecting the financing channels of Macau’s junk 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 although the public consultation document provided limited details, the proposed changes improve long-term sustainable growth for the industry with “positive consequences for the six casino operators”.
However, he warned that “we will not be surprised if the market focuses only on the potentially negative consequences, given the weak investor sentiment”.
The consultation comes as Macau has struggled with a shortage of travelers due to coronavirus brakes since early 2020. Although gaming revenues have increased in recent months, they remain at less than half of 2019 monthly shipments.