Casino stocks in Macau drop $18 billion as China announces new regulations

Gambling venues in Macau saw a record $18.4 billion loss in combined market value as their stocks sunk on Wednesday after officials announced a change in casino regulations. These aim at tightening restrictions on operators, including the appointment of government representatives to supervise Macau companies.

American operator Sands China Ltd. fell 33%, while Wynn Macau Ltd. plunged 34%: the steepest declines ever for both companies, reports Bloomberg. Galaxy Entertainment Group saw its sharpest drop in a decade, at 20%. MGM China, SJM and Melco Entertainment also fell heavily. Combined, all companies took the drop to $18 billion.

China officials in the enclave have announced a 45-day public consultation period starting on Wednesday, in which legal revisions will be discussed. These include how many licenses will be allowed, how long the terms will be, and the level of supervision by the government. Macau’s casino licenses are up for rebidding next year, in June.

News on the consultation period and changes to come were delivered on Monday by Macau’s secretary for economy and finance, Lei Wai Nong, citing deficiencies in industry supervision, reports Reuters.

It still remains unclear how the license rebidding process will be judged, but it didn’t prevent Hong Kong stock analysts from downgrading their view of near-term prospects for casino operators in the region.

J.P. Morgan is downgrading to neutral or underweight all Macau gaming names from overweight due to the tougher scrutiny on capital management and daily operations. Brokerage CFRA downgraded Wynn Resorts to “Strong Sell” from “Buy”, citing heightened regulatory risks.

As the tightened regulatory control took the industry by surprise, so far the revisions have led to much speculation. In addition to the appointment of government representatives, it is also being proposed an increase in local shareholdings of casino companies, although it hasn’t been elaborated yet how these moves will be enacted.

Moreover, Lei has said the consultation will also include areas such as employee welfare and better regulation, including more rules on transfer and distribution of profits to shareholders. Following the consultation period, a final bill will be tabled to the local legislature, according to Bloomberg.

The new gambling revisions are part of an ongoing “crackdown” effort, which is also affecting other sectors of China’s economy, from technology to education, with increased regulations and taxes.

The news comes as Macau is still struggling to recover from the Covid-19 pandemic. Despite revenues having picked up in recent months, they remain low when compared to 2019 monthly figures. For instance, gaming revenue for August was 82% lower versus 2019. Ahead of the license expirations and to counter lackluster revenue figures, some operators have tried to bolster their corporate responsibility and diversify into non-gaming offerings.

China has been clamping down on activity by VIP punters in Macau for some time now, with concerns that high-stakes betting can be an illicit channel for currency outflows and money laundering. It is expected that operators catering to high rollers may face greater pressure.