Macau Legend's shares plunge after CEO is arrested in junket clampdown

[MACAU] Macau Legend Development Ltd tumbled to the lowest on record after its former chief executive officer was arrested as a crackdown on junkets sweeps through the world's biggest gaming hub.

Shares slumped 19 per cent on Monday, the biggest loss since 2015, after the company said Chan Weng Lin had been detained by police and had resigned as CEO. The Macau authorities said Sunday they had arrested two men, including a 49-year-old with the surname Chan, on suspicion of illegal gambling activities and money laundering. Chan is Macau Legend's biggest shareholder and also chairman of Tak Chun Group, the city's second largest junket operator.

A broader Bloomberg Intelligence gauge of casino shares fell 0.3 per cent, with Galaxy Entertainment Group Ltd falling more than 2 per cent. The authorities have arrested 15 people since a campaign against illegal online gambling began in November, including Alvin Chau, founder of Macau's biggest junket operator Suncity Group.

The downfall of two of Macau's most high-profile figures has sent shockwaves through the casino industry. Junkets - which drove the bulk of the city's US$3.5 billion VIP sector - are the focus of an unprecedented crackdown after being blamed by Beijing for helping transfer billions of dollars overseas.

The government also wants the enclave to diversify its economy away from a reliance on gambling. Macau is overhauling laws that govern how casinos operate in order to increase oversight. Under proposed amendments, which are currently being scrutinised by the city's legislature, the practice of junkets sharing revenue with casinos or operating VIP rooms in casinos will be banned. Instead, one junket can work with only one gaming operator and charge a commission for its services.

It is a death knell for the decades-long operating model, under which junkets lure gamblers in with limousines, luxury suites and millions of dollars in credit. Macau's VIP sector revenue plunged 36 per cent in the fourth quarter from a year earlier following Chau's arrest and the number of licensed junkets almost halved this year.

Current casino licenses are due to expire by June, with the new legislation paving the way for the current six operators to seek to renew their permits. Still, the number of licences will be capped at six and given for a maximum of 13 years, down from the current 20.

The authorities also want to review operators' performances every three years and to set a minimum revenue that companies need to meet. The reports of more junket-related arrests in Macau shouldn't have much impact on shares as most investors have "materially lowered their expectations on Macau's junket VIP business to virtually zero" since the authorities arrested Suncity's Chau, Citigroup Inc analysts wrote in a note on Saturday.

Clarity on amendments to the gaming law also signal that the government remains supportive of sustainable development of the broader casino sector.

BLOOMBERG