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Macau casino operators’ stocks plummeted by as much as one-third, and their market value evaporated by approximately US$14 billion, as the government began a public consultation, which investors feared would lead to tightening of the supervision of the world’s largest gambling center.
As Macau’s lucrative casino licenses will be re-bided next year, the government’s proposal to amend the city’s gaming laws has frightened the Hong Kong market, which has already suffered losses due to widespread crackdowns by Beijing regulators, ranging from technology to education and real estate. , Which has reduced the value of assets by hundreds of billions of dollars.
Wynn Macau led the decline, with a 34% drop on Wednesday, a record low. Sands China then plunged 28%. Peers MGM China, Galaxy Entertainment, SJM and Melco Entertainment all fell sharply, falling to HK$109 billion (US$14 billion).
The Secretary for Economy and Finance of Macau, Lei Weinong, issued a notice on Tuesday evening, saying that a 45-day consultation on the gaming industry will be conducted from Wednesday, saying that there are still some deficiencies in industry supervision. The enclave is the only place in China where gambling is legal. Topics covered include: how many permits (called “concessions” locally) will be allowed, how long their term will be, and the level of government oversight.
Although the current license is expected to expire in June next year, it is expected that the license will be renewed for some time, but the tightening of regulatory controls has taken the industry by surprise. In addition to appointing government representatives, the amendment also proposes to increase the casino company’s local holdings, but did not elaborate on how these measures will be implemented.
Beijing has become increasingly wary of Macau’s heavy reliance on gambling and has not yet indicated how it will judge the re-tender process.
After the news came out, industry insiders and analysts felt frustrated, because China’s continued suppression of industries such as gaming and extracurricular tutoring seemed to have finally reached Macau.
Some Hong Kong stock analysts quickly downgraded their views on the near-term prospects of casino operators in the Chinese Special Administrative Region. When the current license expires in June 2022, everyone will have to bid for the license again.
JP Morgan analyst DS Kim said that due to stricter review of capital management and daily operations before license renewal, the bank downgraded the ratings of all Macau gaming companies from overweight to neutral or underweight.
“We acknowledge that this is only a’directional’ signal, and the actual level of supervision/enforcement is still controversial,” he said, adding that the announcement has planted the seeds of suspicion in investors’ hearts.
Strengthen supervision
At a press conference on Tuesday, Lei detailed nine aspects of the negotiation, including the number of licenses to be issued, strengthening supervision and protection of employee benefits, and introducing government representatives overseeing the daily operations of the casino.
At a time when US-China relations are turbulent, discussions about the future of Macau casino licenses have caused some investors to worry that US casino operators may not perform as well as local players.
The government has not singled out any American companies, but the company has been pushing to strengthen the presence of Chinese or local executives in order to position itself as a Macau operator rather than a foreign operator.
Before the license expires, operators have tried to strengthen their corporate responsibilities and diversify into non-gaming products in order to appease Beijing’s concerns about excessive reliance on gambling.
In recent years, Macau has greatly strengthened its censorship of casinos. The authorities have severely cracked down on illegal capital flows from mainland China, and cracked down on underground lending and illegal cash transfers.
Beijing has also stepped up its crackdown on the cross-border flow of gambling funds, which has affected the financing channels of Macau intermediaries and their VIP casino customers.
In June of this year, the number of gaming inspectors in Macau more than doubled and several departments were reorganized to strengthen supervision.
George Choi, an analyst at Citigroup in Hong Kong, said that although the details provided in the public consultation document are limited, the proposed amendments promote the long-term sustainable growth of the industry and “have a positive impact on six casino operators.”
However, he warned, “Given the downturn in investor sentiment, we would not be surprised if the market only focuses on potential negative effects”.
Since the beginning of 2020, Macau has been struggling with a shortage of tourists due to the containment of the coronavirus. Although gambling income has rebounded in recent months, it is still less than half of the monthly income in 2019.
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