Macau casino stocks lose almost US$5 billion in sell-off as China’s gambling crackdown snares junket boss
- Alvin Chau, head of Macau casino junket operator Suncity Group, arrested along with 10 others as authorities investigate a cross-border gambling syndicate
- An index tracking major casino concessionaires tumbled 7.6 per cent, erasing US$4.8 billion of market value or about one-third of the September rout
Macau casino stocks tumbled, erasing US$4.8 billion of market value in Hong Kong, as the arrest of the head of the biggest junket operator in the gambling hub revived concerns about Beijing’s increased scrutiny of the industry.
Sands China and Galaxy Entertainment, the two gaming stocks on the benchmark Hang Seng Index, dropped more than 5 per cent on Monday, extending a sell-off on Friday that was spurred by the emerge of the Omicron virus strain. MGM China sank 10 per cent. The losses were much wider than the index’s 1 per cent decline.
A gauge tracking six casino stocks plunged 7.6 per cent on Monday, the biggest slide since September 15 when the Macau government issued a draft on the overhaul of the gambling industry. Monday’s losses amounted to almost one-third of the September rout in the casino concessionaires.
“Macau’s go-go years do seem over,” said Steve Vickers, a risk management consultant at Steve Vickers & Associates and a former Hong Kong policeman. “Investors in the casino businesses should manage expectations accordingly.”
The casino industry’s rapid expansion always depended on a degree of acquiescence in capital outflows and organised crime involvement with the junkets, Vickers added. China and Macau have now shown “an appetite for tighter control,” he said.
Chau, 47, operates the largest gambling junket through a Macau unit he founded in 2007. Junket operators are go-betweens who bring high rollers to casinos, extending them credit and collecting interest on their debts.
Hong Kong-listed Suncity Group Holdings, a resort operator where Chau is the chairman and controlling shareholder, was halted from trading on Monday. It fell 7.3 per cent on Friday. Its unit Summit Ascent, which operates casinos in Russia, was also suspended.
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Suncity’s junket revenue will probably drop by 30 to 50 per cent in coming weeks, according to JPMorgan Chase, calling the detention “really bad” for the industry. Suncity accounts for about 45 per cent of the junket market, or 15 per cent of Macau’s total gross gaming revenue in 2019, it said.
Shares of Sun Entertainment Group, a filmmaker and funeral services provider that is also controlled by Chau, tumbled by as much as 62 per cent on Hong Kong’s board for smaller growth companies, before ending 31 per cent lower on Monday.
This is the second time this year that Macau’s casino stocks have been walloped by the regulatory crackdown. On September 15, some US$17 billion in market capitalisation was wiped out from the stocks in a single-day drop of 23 per cent after the former Portuguese colony unveiled a plan to tighten the grip on the sector, including the appointment of government representatives.
Chau’s arrest is a fresh reminder to investors that Macau’s gambling industry, which contributes to about 80 per cent of the city’s tax revenue, still remains a focus for Beijing’s top leaders. The casinos, which are banned in the mainland, have been blamed for being a conduit for money laundering and capital flight.
