(Bloomberg) — 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.
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Shares slumped 19% on Monday, the biggest loss since 2015, after the company said Weng Lin Chan had been detained by police and resigned as CEO. Macau authorities said Sunday they had arrested two men, including a 49-year-old with the last name of Chan, on suspicion of illegal gambling activities and money laundering. Chan is Macau Legend’s biggest shareholder and is also chairman of Tak Chun Group, the city’s second largest junket operator.
A broader Bloomberg Intelligence gauge of casino shares fell 0.3%, with Galaxy Entertainment Group Ltd. falling more than 2%.
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.
Read more: Junket King’s Arrest Spurs Selloff as Key Macau Market Targeted
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 $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. Proposed amendments, which are currently being scrutinized by the city’s legislature, will see a ban on junkets sharing revenue with casinos or operating VIP rooms in casinos. Instead, one junket can work with only one gaming operator and charge a commission for its services.
It’s a death knell for the decades-long operating model that saw junkets lure gamblers in with limousines, luxury suites and millions of dollars in credit. Macau’s VIP sector revenue plunged 36% 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 licenses will be capped at six and given for a maximum of 13 years, down from the current 20-year period. 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 authorities arrested Suncity’s Chau, Citigroup Inc. analysts including George Choi wrote in a note on Saturday. Clarity on amendments to the gaming law also signal the government remains supportive of sustainable development of the broader casino sector.
(Updates to add resignation in second paragraph, arrests in fourth paragraph.)
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