(Bloomberg) — Macau’s gaming stocks plunged in Hong Kong after officials in the Chinese enclave revealed a proposal to change casino regulations that could place tighter restrictions on the companies.
Sands China Ltd. sunk 21% in Wednesday morning trading, and Wynn Macau Ltd. plunged 34%, both the most on record. Galaxy Entertainment Group slumped 18%, the sharpest drop in a decade. The Bloomberg Intelligence index of the six big casino operators fell 9.5%, the most since 2016.
Officials in the region, the only place in China where casino gambling is legal, said they would begin a 45-day public consultation period on Sept. 15 to discuss the legal revisions. Among the topics being covered: how many concessions will be allowed, how long their terms will be, and the level of supervision by the government.
In a surprising move that signals more regulatory control, authorities proposed the introduction of government representatives to directly supervise the operations of the gaming companies, without elaborating how they plan to do that. Dismay rippled through industry players and analysts after the announcement.
JPMorgan Chase & Co. analyst DS Kim downgraded the six operators to sell or neutral weightings.“We think this announcement would have already planted a seed of doubt in investors’ minds, which is probably enough to de-rate these names until clarity emerges on key points,” he wrote in the research note Wednesday.
Read more: Gambling Stocks Tumble as Macau Flags More Government Scrutiny
Macau, the world’s largest casino market, has been hard hit by the pandemic, which prompted the government to restrict travel. Renewal discussions for the concessions had been expected for some time, but the comments from the local finance and casino authorities raise the specter of more regulation in a country that already has seen tighter control of businesses from movie production to video games.
Among the items officials discussed in a press conference Tuesday were tighter controls on the distribution of dividends, greater participation by locals in the concessions and government representatives directly overseeing the businesses, Kim noted.
Analysts Bearish on Proposed Rules for Macau
Jason Ader, the chief executive officer of New York-based investment manager SpringOwl Asset Management and a former Las Vegas Sands Corp. board member, said he thought casinos operators will likely see the restrictions being proposed as not so bad. He said it was unlikely an operator like Sands would lose its license, although the overall climate for foreign companies in the country isn’t great.
“It’s sort of all going in the wrong direction in China,” Ader said. “The casino issues are a continuation of what’s been a pretty big crackdown.”
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