Macau casino stocks plunged Monday on fears tighter credit in China will curtail the flow of wealthy high-rolling gamblers that have powered the city's gambling boom.
The biggest casino operator, SJM Holdings Ltd., lost a quarter of its value on the Hong Kong stock exchange. MGM China Holdings Ltd., a unit of MGM Resorts International, tumbled 20 percent and other Hong Kong-listed units of U.S. casino operators also plunged. The declines outpaced the 4.4 percent decline in the benchmark Hang Seng Index.
About two-thirds of Macau's gambling revenues, which soared nearly 60 percent to $23.5 billion last year, are estimated to come from high-spending mainland Chinese who gamble with borrowed money from so-called "junket operators."
The junket operators are essentially tour agencies that help mainland Chinese travel to Macau, but also lend them money to gamble in private VIP rooms and collect debts when they return home.
Some junket operators are financed through China's underground lending system, which has sprung up to lend to private enterprises that have a hard time getting loans from China's mostly state-owned banks.
Recent news reports that these unofficial lenders are tightening credit are spooking investors, analysts said.
"It's hard to tell really what's going on but as we hear these stories, these rumors, people are seizing on them and using it as an excuse to sell things down," said Philip Tulk, head of gaming research at Royal Bank of Scotland.
Last week, reports emerged that the Chinese city of Wenzhou was struggling with a credit crunch that cut off the only source of funding for private companies and prompted dozens of debt-laden company bosses to flee.
Tulk said Macau gaming stocks had risen 20 percent for the year before Monday so investors are also selling to lock in gains.
Macau is the only place in China where casinos are legal and its economy has boomed since a four-decade casino monopoly was dismantled in 2002. High-rollers from the mainland have helped the special administrative region of China become the world's most lucrative gambling market since 2006, when it overtook Las Vegas. Revenue has continued to rocket this year, surging 57 percent in August over the year before.
In Hong Kong stock market trading, Las Vegas Sands Corp.'s Sands China Ltd. fell 14 percent and Wynn Macau Ltd., a unit of Wynn Resorts Ltd. fell 11 percent. Local operator Galaxy Entertainment Group Ltd. tumbled 19 percent.