Billions exploded as Macau casino investors retreat amid game review

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

With Macau’s profitable casino licenses to be re-tendered next year, a government proposal to revise the city’s gambling law scared off a Hong Kong market that had already fallen red due to widespread regulatory crackdown of Beijing, between sectors, from technology to education and property. hundreds of billions of dollars discount on the value of assets.

Wynn Macau (1128.HK) led the fall, falling as much as 34% to a record low, followed by a 28% drop for Sands China (1928.HK). Partners MGM China (2282.HK), Galaxy Entertainment (0027.HK), SJM (0880.HK) and Melco Entertainment (0200.HK) fell sharply, bringing the fall to 109 billion Australian dollars (14 billion US dollars). ).

The fall came after Lei Wai Nong, Macao’s secretary of economy and finance, announced a 45-day consultation on the gaming industry starting Wednesday, saying there were still some shortcomings in industry supervision.

Beijing, increasingly wary of Macau’s acute reliance on gambling, has not yet indicated how the license withdrawal process will be judged.

Some Hong Kong stock analysts wasted no time in lowering their view of the short-term outlook for casino operators in China’s special administrative region. All are required to re-license 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 intense scrutiny of capital management and day-to-day operations prior to renovations. of licenses.

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

CLOSER REGULATION

At a news conference on Tuesday, Lei detailed nine areas for consultation, including the number of licenses to be granted, greater regulation and protection of employee welfare, as well as the introduction of government representatives to oversee day-to-day operations at casinos. Read more

The government is also proposing to increase the voting quotas of Macau permanent residents to gaming concessionaires, as well as additional rules on the transfer and distribution of profits to shareholders.

Discussions about the future of Macau’s casino licenses are taking place amid rocky relations between the United States and China, prompting some investors to fear that U.S.-based casino operators will not have the same rate as local players.

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

Prior to the expiration of the license, operators have tried to bolster their corporate responsibility and diversify into non-gaming offerings to appease Beijing’s fears of over-reliance on gaming.

Macau has massively tightened scrutiny of casinos in recent years, with authorities curbing illicit capital flows from mainland China and targeting underground lending and illegal cash transfers. .

Beijing has also intensified the war against cross-border flows of gambling funds, which affects the funding channels of Macau operators and their VIP casino customers.

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

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

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

The consultation comes as Macau has had problems with the lack of passengers due to coronary heart disease slowdown since early 2020. Although gambling revenues have increased in recent months, they remain at less than half of 2019. .

(1 $ = 7.7783 Hong Kong dollars)

Additional reports from Donny Kwok; Edited by Anne Marie Roantree and Kenneth Maxwell

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