Gaming stock values drop in Macau

Share prices of most Las Vegas gaming companies with ties to Macau fell Wednesday after the Times of London reported China may be preparing to target junket operators with links to organized crime.

China's government is expected to clamp down later this month on the operators, who bring gamblers from the mainland to Macau, the Times reported. By acting as middlemen, junket operators help drive VIP business to casinos located in the world's largest gambling center.

It is estimated that VIP business accounts for two-thirds of casino revenue in Macau. The former Portuguese colony posted $3.36 billion in gaming revenues in November.

"The Times report that Beijing is planning a crackdown … after Chinese New Year is likely more disruptive to Macau stocks than Macau revenue, and any stock disruption will likely prove short-term," said David Bain, an analyst with Sterne Agee & Leach Inc.

Bain said he spoke with three junket operators since the Times article was published and the "feedback came back sanguine as it related to any significant crackdown."

Wynn Resorts Ltd. was hardest hit of the Las Vegas-based companies, closing down $2.45, or 1.95 percent, to $123.30 on Nasdaq. Wynn Macau Ltd., a subsidiary of Steve Wynn's gaming company lost 6.8 percent in Hong Kong, its biggest drop since October 2011.

Las Vegas Sands Corp. lost 43 cents, or 0.79 percent to $54.30, and MGM Resorts International closed in plus territory, gaining a cent, or 0.08 percent, to $12.98. Both Las Vegas Sands and MGM are listed on the New York Stock Exchange.

Sands China Ltd. fell 5.2 percent and MGM China Holdings Ltd dropped 0.3 percent. Both companies are subsidiaries of Las Vegas Sands and MGM, respectively, and are listed on the Hong Kong stock exchange.

Bain said even a symbolic move could cause high rollers to stay away. Still, he sees any weakness as a "buying opportunity."

Union Gaming Group principal Grant Govertsen, who is based in Macau, also viewed the selloff "as a buying opportunity, particularly of the names with higher amount of VIP exposure."

The Times reported the police operations will take place in six Chinese cities and are part of an anti-corruption campaign led by Xi Jinping, the Communist Party general secretary. Gambling stocks with ties to Macau have been on the rise lately, as the region appeared to be recovering from a previous crackdown.

Top Chinese leaders have expressed concerns about the junkets before. The Wall Street Journal reported in December that Pang Yufeng, a partner at junket operator David Star, was one of at least three executives arrested from the biggest junket operators.

"Most of the recent arrests (and) detentions of junket associates appear to have close ties to Bo Xilai, the now-disgraced Chinese politician," Govertsen said. "It makes sense to us that in the context of the transition of power in Beijing that the reverberations would be felt in Macau."

Govertsen said any crackdown would come as a result of the consolidation of power by Xi Jinping, who is in line to be named president in March when the Communist National People's Congress convenes.

The Times said anti-crime operations under the campaign have already begun on a small scale.

Contact reporter Chris Sieroty at csieroty@review journal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.