Macau operator shares plunge on fallout from Suncity Group boss arrest

Macau, stocks

Suncity Group Chairman Alvin Chau was transferred to a local jail pending trial, with his arrest continuing to reverberate through the industry, sending shares in Macau’s casino operators plunging on Monday.

According to local media reports, Chau will be held in a facility on Coloane. He was questioned for 14 hours overnight on suspicion of illegal gambling activities and money laundering.

Macau authorities detained Chau and 10 others for questioning on Saturday after what they said was a two-year investigation into his activities. A warrant for his arrest has also been issued in China.

Chau is the head of Suncity Group, Macau’s largest operator and is also chairman of the Hong Kong-listed Suncity Group Holdings. He is the most senior figure to date to be caught up in China’s crackdown on cross-border gambling activities. 

The news sent Macau casino shares sharply lower, although analysts at Bernstein said the focus of the investigation appears to be more on Chau’s alleged online activities and overseas junket business, rather than targeting gambling activities in Macau.

Bernstein points out that the junket business in Macau has been in decline and the future of gambling in the territory lies in the mass and premium mass business.

“A shrinking junket business, especially junkets with links to overseas gambling and illicit online gambling, is good for the stability and future opportunity in Macau,” it wrote.

Still, analysts expect an immediate further shrinkage in VIP revenues in Macau, which make up about a third of all gross gambling revenue. J.P. Morgan has tipped a reduction of between 30 percent and 50 percent in the near term.

MGM China’s stock saw the biggest decline amongst the Hong Kong-listed operators, closing the day down more than 10 percent. Wynn Macau was down 7.8 percent, Galaxy Entertainment lost 5.4 percent and SJM Holdings fell 6.7 percent. NASDAQ-listed Melco Resorts & Entertainment was down 1.5 percent in U.S. trading.

Suncity Group Holdings and its Summit Ascent unit, which operates the Tigre de Cristal in Russia, were temporarily suspended from trading pending a statement on Chau’s arrest. Trading will resume on Tuesday. 

Bernstein conceded that there is concern that the Suncity situation will cripple liquidity in Macau and it said this may have a temporary impact on premium mass. 

“However, we expect mass and premium mass to be largely unaffected in the long-run by these junket problems.”