Xi who must be obeyed: This week’s Chinese government proposals for tighter regulations in Macau knocked a record $18.4bn in combined share price value off Macau’s gaming operators. The new rules will include increased supervision of operators’ daily activities around VIPs and junkets, a raised level of local ownership, restrictions on dividend payments and the reform of sub-concessions licensing, potentially reducing the number of licenses and shortening their terms from the current 20+5-year concession system.
Common people: China says the reforms are part of the ‘Common Prosperity Plan’ to reduce the wealth gap in the country. However, writing in the WSJ recently, billionaire investor George Soros’s take on these recent moves was that “the regime regards all Chinese companies as instruments of the one-party state” and this “does not augur well for investors.”
Maximus ominous: Deutsche Bank’s top line was that “the meaningful ambiguity” will remain until “further color is provided” or the new gaming law is made public.
Although nothing has changed so far, DB said the future impact of such reforms was “far more ominous than the reality of what has, or in many cases, has not, changed.” With public consultation on the proposals set to last until 29 October, the analyst team at Jefferies said “the only certainty is stricter capacity control and supervision”.
Unknown unknowns: The concession renewal process and related news were always likely to lead to a bumpy period, but for the team at DB the “dominant narrative” currently is “fear of the unknown”. Investors appear to have taken note of other actions on the part of the Chinese government targeting high-profile business sectors in China, including illegal online gaming, while the stop-start nature of the post-pandemic recovery has been frustrating.
Shifting Sands: In a note issued in the wake of this week’s events, analysts at Jefferies have downgraded Las Vegas Sands to a hold suggesting the uncertainty around Macau highlights how the company – which divested itself of its Las Vegas Strip operations this year – has left it “without alternative avenues of growth.” “New US license opportunities do not appear to be viable, while the commitment to digital gaming growth appears modest,” they added. The team also lowered their estimates on Wynn Resorts given its exposure to the VIP area which will likely be “materially impacted” by the proposals.
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