Government seeks to strengthen supervision of Macau casino stocks down US$16 billion

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Gaming Industry Update

The Macau government’s efforts to strengthen casino regulation have evaporated the market value of listed gaming operators by US$16.4 billion, as analysts warned that strict regulation may squeeze profit margins already strained by the Covid-19 pandemic.

Sands China shares fell 29% in Hong Kong trading on Wednesday, Wynn Macau fell 28%, and rival MGM China fell nearly 22%. Galaxy Entertainment and SJM Holdings fell about 18% each, while Melco International fell 16.8%.

As prices fell, the Chinese Territory launched a 45-day public consultation on amending its gaming law, which is expected to strengthen the scrutiny of the operator of the world’s largest gaming center. The casino group’s 20-year franchise in Macau will expire next year.

The authorities’ tightening of casino controls is also underway, because Beijing has started A wide range of sports Reshape the country’s commercial, political, and cultural patterns to eliminate inequality and promote “cultural prosperity.”

Chinese regulators have imposed strict conditions on the largest companies in the fields of technology, online education and video games. The authorities have targeted Social behavior Think harmful.

Desmond Lam, Associate Professor of Gaming Management at the University of Macau, said: “This will make the casino more down-to-earth and bring the operation of Macau casinos closer to the attention of the government and the community.”

The draft law states that the government plans to add its own representatives to the board of directors of casinos that have franchise rights in Macau. The only jurisdiction in China Gambling is legal.

It is expected that the law will also cover the number and duration of casino operators’ concessions, allowing the authorities to treat the largest employers and Main driver Economic growth.

Casino operators are also Significantly weakened Affected by the pandemic, it has stifled the important flow of tourists from mainland China to the city.

According to data released by the Macau Gaming Inspection and Coordination Bureau, total gaming revenue has fallen by about 80% from pre-pandemic levels.

The proposed law is also expected to review “intermediaries,” a sub-sector of the gaming industry that attracts high-profile customers from the mainland and provides them with credit in Macau.

This may weaken VIP revenues, since President Xi Jinping’s iconic anti-corruption campaign began nearly a decade ago, the proportion of VIP revenues in casino revenues has been slowly declining.

But Alidad Tash, a former casino executive at the current gaming consultancy 2nt8 Limited, said that curbing intermediaries would have a wider impact because China’s capital controls, Which prevented its citizens from bringing large sums of money into Macau.

“The lucrative midfield business does rely on intermediaries to provide funds to people from mainland China,” he said, predicting that Wynn and SJM will be among the companies most affected by the VIP package restrictions.

JPMorgan Chase on Wednesday downgraded the ratings of all six Macau casino operators to underweight or neutral.

JP Morgan analyst DS Kim wrote in a report: “We believe that this announcement has planted the seeds of suspicion in investors’ hearts, which may be enough to reduce the value of these names until the key points become clear. “

But some observers remain optimistic about the potential changes.Citi’s George Choi acknowledged that the market may be pessimistic about the latest announcement, but insisted that ​​“all proposed amendments [of the law] Can it promote long-term sustainable growth”.

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