Macau casino stocks shed $18bn as government seeks greater oversight

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The Macau government’s drive to increase oversight of casinos wiped $18.4bn off the market value of listed gambling operators, as analysts warned that stringent regulations could squeeze margins already strained by the Covid-19 pandemic.

Shares of Sands China tumbled 32.5 per cent, Wynn Macau fell 29 per cent and rival MGM China lost almost 27 per cent in Hong Kong on Wednesday. SJM Holdings shed 24 per cent while Melco International and Galaxy Entertainment dropped 20 per cent each.

The losses left the Bloomberg Intelligence Macau Gaming Composite index, which tracks the city’s listed casino operators, down 23 per cent at the close of trading, marking the gauge’s worst one-day performance on record.

The price falls came as the Chinese territory opened a 45-day public consultation on revising its gaming law, which is expected to step up scrutiny of operators in the world’s biggest gambling hub. Casino groups’ 20-year concessions to operate in Macau are set to expire next year.

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The authorities’ move to tighten control of casinos is also proceeding as Beijing embarks on a broad campaign to reshape the country’s business, political and cultural landscape in a bid to stamp out inequality and promote “cultural prosperity”.

Chinese regulators have imposed stringent conditions on the country’s biggest companies in the tech, online education and video gaming sectors, and authorities have targeted social behaviours perceived as harmful.

“It will keep the casinos more down to earth, aligning Macau casino operations more closely to the government’s as well as the community’s concerns,” said Desmond Lam, an associate professor in gaming management at the University of Macau.

Line chart of Bloomberg Intelligence Macau Gaming Composite index showing Macau casino stocks slump in the face of greater oversight

A draft version of the law indicated that the government planned to add its own representatives to the boards of casinos that hold concessions in Macau, the only jurisdiction in China where gambling is legal.

The law is also expected to cover the number and duration of concessions for casino operators, giving authorities substantial leverage over the Chinese territory’s largest employer and main driver of economic growth.

Casino operators have also been weakened substantially by the pandemic, which throttled the vital flow of mainland Chinese tourists to the city.

Gross gambling revenues are down about 80 per cent from pre-pandemic levels, according to figures published by Macau’s Gaming Inspection and Coordination Bureau.

The proposed law is also expected to examine “junkets”, a gambling industry subsector that lures high rollers from the mainland and extends credit to them in Macau.

This could dent the VIP revenue, which has slowly declined as a proportion of casino revenues since President Xi Jinping’s signature anti-graft drive began almost a decade ago.

But Alidad Tash, a former casino executive now at gaming consultancy 2nt8 Limited, said curbing junkets would have wider implications because of China’s capital controls, which prevent its citizens from bringing large sums into Macau.

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

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

“We think this announcement would have already planted a seed of doubt in investors’ minds, which is probably enough to de-rate these names until clarity emerges on key points,” JPMorgan analyst DS Kim wrote in a note.

But some observers remained sanguine on the potential changes. George Choi at Citi acknowledged that markets might take a dim view of the latest announcement, but maintained that “all the suggested revisions [of the law] are there to enhance long-term sustainable growth”.

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