By Farah Master and Donny Kwok

HONG KONG (Reuters) – Shares of Macau casino operators on Wednesday shed as much as a third of their value, losing about $18 billion, 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 https://www.reuters.com/world/china/china-crackdown-wipes-hundreds-billions-off-top-companies-values-2021-09-13.

Wynn Macau (OTC:) led the plunge, falling as much as 34% to a record low, followed by a 28% tumble for Sands China (OTC:). Peers MGM China and Galaxy Entertainment (OTC) all suffered heavy losses, with the total drop reaching HK$143 billion ($18 Billion).

U.S. casino companies also fell for the second straight day, losing as much as $4 billion in market capitalization on Wednesday, with Las Vegas Sands (NYSE:) Corp slumping to more than a year low, Wynn Resorts (NASDAQ:) Ltd and MGM Resorts (NYSE:) International, dropping 8% and 5%, respectively.

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 the following day, pointing to deficiencies in industry supervision https://www.reuters.com/world/asia-pacific/macau-beefs-up-casino-rules-more-than-doubles-number-gaming-investigators-2021-06-21.

Beijing is becoming more wary about Macau’s gambling dependence. However, Beijing has yet to disclose how it will judge the process for rebidding licences.

Edward Moya from OANDA, New York said that margins will be cranked at Macau’s gambling capital and this will cause all of the major casinos to go under.

Hong Kong stock market analysts were quick to downgrade their outlook on near-term prospects casino operators in China’s special administrative region. All must rebid license applications when permits expire June 2022.

Analyst D.S. said that J.P. Morgan has decided to downgrade all Macau gaming companies from overweight, due to the stricter oversight on capital management and day-to-day operations in advance of renewal of their licences. Kim.

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Brokerage CFRA reduced Wynn Resorts’ rating to “Strong Sell”, from “Buy,” citing increased regulatory risks. They also stated that the review was an overhang for Wynn Resorts and other operators.

TIGHTER REGULATION

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

Additionally, voting shares will be increased in Macau gaming concessionaires to allow permanent residents to vote. There will also more rules for the transfer and distribution to shareholders.

Some investors are concerned that Macau-based casinos may be at greater risk than those based in the United States. This is because of the rocky U.S.–China relations.

Although the U.S. hasn’t singled any players out, some companies have made efforts to increase their Chinese-speaking or local executive presence in order to position themselves as Macau operator rather than as foreign ones.

To placate Beijing’s fears of over dependence on gambling, operators tried to increase corporate responsibility and diversify into alternative gaming options before their license expired.

In recent years Macau increased scrutiny of casino operations, focusing on illegal capital transfers from China. It also targeted underground lending and cash transfers.

Beijing is also increasing its efforts to stop cross-border funds flowing for gambling. This has had a negative impact on Macau’s junket operators, as well their VIP customers.

Macau increased its gaming inspectors by more than twofold in June and revamped their departments to improve supervision.

George Choi, a Citigroup (NYSE:) 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”.

He cautioned that the market might focus on negative consequences due to the low investor sentiment.

This consultation is timely as Macau’s struggle to attract tourists has been exacerbated by coronavirus curbs that were implemented at the beginning of 2020. Although gambling revenue has increased in the last months, it is still less than half what was reported for 2019.

($1=7.7785 Hong Kong dollars)