The top gaming stocks in Macau lost $18.4 billion in market value today, Wednesday, September 15, which is a record-breaking number. The loss in market value is a result of the new tight restrictions on gaming operators that officials have announced. One of the changes, if approved, includes the constant supervision of companies by representatives of the government.
The six biggest Macau casinos experienced a record drop in the Bloomberg Intelligence index – 23%. Out of these six, American casinos had the worst drops. Sands China sunk 33% and Wynn Macau Ltd dropped 34%, both of which are the steepest declines. Galaxy Entertainment Group fell 20%, which is the company’s biggest drop in the last decade. MGM Resorts International, Wynn Resorts Ltd., and Las Vegas Sands Corp. recorded a drop in US trading for a second day.
China’s Dollar Bond Market Also Declined
The dollar bond market of China also declined with the new changes. A Wynn Macau note, which is due 2028, declined nine cents on the dollar and reached 91.4 cents; hence, it is set for the biggest decline in history, as reported by Bloomberg-compiled prices. MGM China Holdings Ltd, Melco Resorts, and SJM Holdings Ltd., also recorded dollar bond drops of at least 3 cents.
Officials from the enclave’s, which is the only region in China where gambling is considered legal, stated that they will commence a public consultation period which will start today and will last for 45 days. The goal will be to discuss the legal revision. Some of the topics that will be covered in these discussions include the number of concessions that will be allowed, the government’s supervision level and the duration of the concession terms. Casino operators are pushing for longer terms, but Macau is so far silent on the topic.
Since the licenses expire next June, renewals were expected for some time, but the new and tight regulations caught all operators off guard. Apart from the appointed government representatives, increased local shareholdings of casino companies are also proposed by revisions. There is no elaboration on the enactment of these moves.
After China’s current clampdown on numerous sectors, gaming and after-school tutoring included, appears to have reached Macau, industry players and analysts were extremely concerned.
The New Restrictions Come at a Time When Macau is Still Batting COVID-19
Jason Ader, the CEO of SpringOwl Asset Management, an investment manager based in New York, stated that the casino issues are the continuation of the big crackdown. He also added there’s a debate on whether it is worth investing in China at the moment. Increased regulations and taxes, as well as restrained movement, is something that nobody likes to see and all of that looks like the stat quo.
DS Kim, a JP Morgan Chase & Co. analyst, released a research note today in which he downgraded the mentioned six casinos to either neutral or sell weightings. He wrote that the company thinks the announcement has planted doubt in the minds of the investors and that’s enough to de-rate these names until some key points are clarified.
The tight regulation comes at a period in which Macau is still struggling with COVID-19. That prompted the government to impose travel restrictions and that was a major blow to gamblers who traveled from mainland China to Macau. According to statistics, Macau’s August gaming revenue was 82% lower than that of August 2019.
Kim noted that in a press conference held on Tuesday, some of the items that officials discussed included tighter control on dividend distribution, greater local participation in the government representatives that are overseeing the industry and the concessions. The local legislature will receive a final bill after the consultation period ends.
China has been tightening the activity of Macau VIP gamblers for the last couple of years now out of concern that high-stakes wagering with Hong Kong dollars can lead to currency outflows, as well as money laundering. Organized gambling trips to Macau and other overseas locations have also been cracked down by Beijing in an effort to discourage gambling. These trips were organized by so-called junkets; they are companies that are at the service of high rollers by extending them credit.
Operators that cater to high rollers may even face greater pressure to limit their bets and invest more money in attractions that are not related to gambling and thus, work harder to better the premium mass market, as told by Angela Hanlee and Kai Lin Choo, gaming analysts with Bloomberg Intelligence.
According to Some, The Proposal Won’t Make A Massive Impact
Even though the market is in a state of panic, some observers think that the proposal will not impact operators significantly. Bernstein analysts, led by Vitaly Umansky, had a press briefing on Tuesday and said that officials put a major emphasis on maintaining a scale of this industry, which means that it is very likely for the six operators to keep their licenses.
In a note, Umansky said that the team’s views are the same – the six operators will be here today, but they will also be here tomorrow. He also added that he does not see major concerns over the government’s decision to supervise gambling companies because they have already worked closely with officials.
While China has been increasing its scrutiny over the gambling sector in Macau for several years now, the move on Tuesday comes as a result of Beijing cracking down on society and business. The campaign, which was originally focused on the influence of tech giants in China, has taken a moralistic tone and now targets children’s use of video games to after-school tutoring. The Communist Party has been a long-life enemy of gambling. It cites the negative influence of families and connects it to social disharmony.
But, Chinese people are gambling fans. The recent restrictions in Macau did not stop them, as they have started going to markets that are not too regulated, with the Philippines and Cambodia being two of them. In these regions, casinos had major success even before the pandemic hit the world.
Ader also noted that it is highly unlikely for western operators such as Sands to lose their license, but noted that the overall climate for foreign companies in China is deteriorating. He said that it is all going in the wrong direction in the country. There are many reasons why Macau doesn’t seem like the same place as several years ago.