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This file photo taken on March 5, 2019 shows visitors taking photos outside the Wynn casino resort in Macau.

ANTHONY WALLACE/AFP/Getty Images

Shares of Macau casino operators plummeted as much as a third on Wednesday, losing about US$18-billion in value, as the government kicked off a regulatory overhaul that could see its officials supervising companies in the world’s largest gambling hub.

With Macau’s lucrative casino licences up for rebidding next year, the plan spooked a Hong Kong market already deep in the red after Beijing’s regulatory crackdown on sectors from technology to education and property that sliced hundreds of billions of dollars off asset values..

Wynn Macau led the plunge, falling as much as 34 per cent to a record low, followed by a 28-per-cent tumble for Sands China Ltd. Peers MGM China Holdings Ltd., Galaxy Entertainment , SJM Holdings Ltd. and Melco Resorts & Entertainment Ltd. all fell heavily, taking the drop to 143 billion Hong Kong dollars ($23-billion).

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Shares of U.S. casino companies were set for a second straight day of losses, with Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International dropping 2 per cent to 5 per cent in premarket trading.

The slump came after Lei Wai Nong, Macau’s secretary for economy and finance, gave notice on Tuesday of a 45-day consultation period on the gambling industry to begin from Wednesday, pointing to deficiencies in industry supervision.

Beijing, increasingly wary of Macau’s acute reliance on gambling, has not yet said how the licence rebidding process will be judged.

Some Hong Kong stock analysts wasted little time in downgrading their view of near-term prospects for casino operators in the Chinese special administrative region, who must all rebid for licences when current permits expire in June, 2022.

J.P. Morgan is downgrading to neutral or underweight all Macau gaming names from overweight, because of the tougher scrutiny on capital management and daily operations ahead of licence renewals, analyst D.S. Kim said.

“We admit it’s only a ‘directional’ signal, while the level of actual regulation or execution still remains a moot point,” he said, adding the news would have already put doubt in investors’ minds.

Brokerage CFRA downgraded Wynn Resorts to “strong sell” from “buy,” citing heightened regulatory risks and said the review was a major overhang for the company as well as other operators.

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TIGHTER REGULATION

At a news briefing on Tuesday, Mr. Lei detailed nine areas for the consultation, such as the number of licences, better regulation and employee welfare, as well as having government representatives to supervise daily casino operations.

The government also plans to increase voting shares in gaming concessionaires for permanent residents of Macau, as well as more rules on transfer and distribution of profits to shareholders.

Discussions over the future of Macau’s casino licences come amid rocky U.S.-China relations, leaving some investors fearing an edge for domestic players over U.S.-based casino operators.

The government has not singled out any U.S. players, but companies have moved to beef up the presence of Chinese or local executives as they position themselves more as Macau operators than foreign ones.

Before licence expiry, operators have tried to strengthen corporate responsibility and diversify into non-gaming offerings to placate Beijing, which fears overreliance on gambling.

Macau has boosted scrutiny of casinos in recent years, clamping down on illicit capital flows from mainland China and targeting underground lending and illegal cash transfers.

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Beijing has also stepped up a war on cross-border flows of funds for gambling, hitting the funding of Macau’s junket operators and their VIP customers.

In June, Macau more than doubled the number of gaming inspectors and restructured departments to boost supervision.

George Choi, a Citigroup analyst in Hong Kong, said while the public consultation document gave few details, the suggested changes benefit long-term sustainable growth, with “positive implications on the six casino operators.”

However, he cautioned, “we will not be surprised if the market focuses only on the potentially negative implications, given the weak investor sentiment.”

The consultation comes as Macau has struggled with a dearth of travellers because of coronavirus curbs since the start of 2020. While gambling revenues have picked up in recent months, they remain less than half of 2019 monthly figures.

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