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Threat of Tougher Regulation Causes Macau Casino Share Prices to Hit All-Time Lows

Galaxy Casino MacauThe good times for Asia’s answer to Las Vegas could be coming to an end after authorities revealed their plans to introduce much tougher legislation.

Lei Wai Nong, the secretary for economy and finance in Macau, has issued a 45-day consultation period that will look into whether or not gambling in the region is adequately supervised.

The consultation will determine whether or not tighter regulation is needed, whether the number of licences issued to operators is appropriate and whether or not the government would intervene in the sector by employing their own official supervisors.

It comes in the wake of a wider crackdown from the Chinese government into a number of business sectors, including tech firms and private education providers. Tighter regulations here have led to billions being wiped off the value of the companies involved, and the fear for gambling operators in the area is that they might be targeted next.

Wynn Macau Share Prices
Share price via Google Finance

Complaints of illegal lending and money laundering saw authorities more than double the number of inspectors employed in the sector back in June, and with profits continuing to stall with visitor numbers low firms such as Wynn and Sands have a decision to make as to whether they renew their licence or not.

“The casino issues are a continuation of what’s been a pretty big crackdown,” said Jason Ader, a former investment manager at Las Vegas Sands.

“There’s a debate over whether China is even investable right now. You never like to see increased regulation, increased taxes, restrained movement. That all seems to be the status quo.”

The casino licences in Macau are to be put up for the rebidding process in 2022, but will the industry still be attractive enough amid the government shake-up?

Downward Spiral

China Flag on Wall

The Chinese government have a reputation for being, shall we say, heavy handed in their legislative approach at times, and fears of the whip being cracked on gambling firms has led to investors retreating at pace.

Approximately $18 billion was wiped off the value of operators on Wednesday alone, and in the case of Wynn Macau and Sands China that accounted for more than 33% of their total worth.

The market has continued to slide throughout the week, with as much as another 13% wiped off the share value of those involved.

The tightened laws on capital and taking money across borders has also hit the sector hard in Macau, and has been one of the reasons why so-called ‘junkets’ have become less successful as a money-maker for casinos.

The idea is that high stakes players are attracted from the mainland, and that casinos are able to offer credit facilities to them whilst in Macau. However, the ‘anti-graft’ regulation introduced by President Xi Jinping makes it almost impossible for operators to do that, and with tough laws on cross-border financing it is becoming much harder to attract overseas punters.

If this VIP system is outlawed, it will become very difficult for Macau casinos to thrive in the current climate.