Macau casino operators received a big blow on Wednesday as they lost about a third of their value. The nearly $18 billion drop in market value came after the government started an overhaul of its gambling-related regulations. The new legislature will bring direct government supervision of the casino operators in the world’s biggest gambling market.
On Tuesday, Lei Wai Nong, Macau’s secretary for economy and finance, informed operators that Wednesday will mark the beginning of the 45-day period of consultations on the gambling industry. The reason, as cited by Lei, is faulty industry supervision. The government has been worried about Macau’s over-reliance on gambling for quite some time. So far, Beijing is yet to reveal details on the evaluation of new license bids.
The news had an adverse effect on the Hong Kong gambling market. It has already been on the way down after the latest government regulations in the various sectors including tech, education, and property. Asset values have been down by multiple billions of dollars.
The biggest drop came for Wynn Macau whose shares are 34% down a has reached a record low. The other operators are not too far behind with Sands China dropping 28%, and Peers MGM China, Galaxy Entertainment, SJM, and Melco Entertainment all shedding value heavily.
As the news broke, US companies also fell for the second day in a row. On Wednesday, the total loss was estimated to be $4 billion in market capitalization. Las Vegas Sands Corp, Wynn Resorts, and MGM Resorts International all dropped between 5 and 8 percent.
According to experts, this will likely be a big hit to some of the world’s biggest operators. As soon as the news broke out, some of the Hong Kong stock analysts have adjusted their short-term projections for gambling operators, downgrading them significantly. Current licenses expire in June 2022 and all Macau operators must re-apply.
At JP Morgan, all Macau operators were downgraded to underweight or neutral. They expect that the forthcoming close inspection of capital management and daily operations will heavily influence the companies within the market. At the same time, Brokerage CFRA has demoted Wynn Resorts’ status from “Buy” to “Strong Sell”. The investment research firm cited increased regulatory risks and uncertainty around the review as reasons for this decision.
At the press conference, Lei explained that the consultation process will involve nine areas of China casino operations. These will include a re-evaluation of the number of licenses, better regulation, increased government supervision, and employee welfare. Also, the plan is to increase the voting shares in gambling operators for permanent Macau residents.
All of this is happening amid the unstable and strenuous US-China relations. Many fear that the new regulations will provide an advantage for domestic companies over the operators from the US. In the light of the recent events, the companies have moved to increase domestic presence among their executives.
With the license expiry date closing in, operators have increased their efforts to increase corporate responsibility and diversify their business to contain more non-gaming offerings. Some analysts believe that new regulations will have a positive effect on the six big casino operators. However, the investors are so far focusing only on the potential negative implications.