Thursday, December 1, 2022

Capital Group Pares Stake In Battered Wynn Macau

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Posted on: March 21, 2022, 11:23h. 

Last updated on: March 21, 2022, 01:25h.

Mutual fund giant Capital Group recently reduced its stake in Wynn Macau, grossing $11.5 million last week in proceeds after selling just over 19.45 million shares of the gaming operator.

Wynn Macau
Two people stand in front of the Wynn Palace in Macau. Capital Group reduced its stake in Wynn Macau. (Image: Anthony Kwan/Bloomberg)

California-based Capital Group, which issues mutual funds under the American Funds brand, now owns 5.73 percent of Wynn Macau equity, down from 6.10 percent. Wynn Macau is the China arm of Wynn Resorts (NASDAQ:WYNN) and controls a namesake integrated resort, as well as Wynn Palace in the world’s largest casino center.

Capital Group’s reduction in its Wynn Macau position arrives amid news that Macau concessionaires are seeing debt burdens increase, though it’s not clear if these items are related. Before the start of the coronavirus pandemic, Macau operators had just $5 billion in combined liabilities.

But that figure has since risen to $20 billion, and is forecast to top $23 billion by the end of this year.

Bad Timing in Selling Wynn Macau

In financial markets, it’s often said it’s best to “buy low and sell high.” But even professional investors make the mistake of selling low.

That appears to be the case with Capital Group’s paring of its Wynn Macau stake, which occurred on March 16 — a day after the stock slid to a 52-week low. Concessionaires there continue facing myriad headwinds.

A recent surge of COVID-19 cases in mainland China and Hong Kong — two of the major travel arteries to Macau — is extending what’s now a lengthy road to recovery for the world’s largest casino center, pressuring long-slumping share prices in the process.

China’s zero-tolerance policy regarding COVID-19 is a stumbling block for Macau operators, including Wynn. That’s because it leads to restricted travel when outbreaks occur, keeping gamblers away from the special administrative region (SAR). On that note, analysts expect another sluggish year in terms of Macau’s gross gaming revenue (GGR).

“Our current base case assumes Macau’s GGR will be 30 percent-40 percent of the 2019 level in 2022, down from the 60 percent-70 percent we forecast previously,” said Standard & Poor’s in a February report.

Long Road Back for Wynn Macau, Other Macau Equities

While regulatory risk is mostly clear and Macau authorities are extending gaming licenses for current concessionaires while not opening the market to new competition, operators still face challenges. That includes the aforementioned travel restrictions caused by COVID-19.

Specific to Wynn Macau, that company is one of the Macau operators most tethered to the VIP market, which is under significant duress because of the collapse of the SAR’s junket business.

Analysts believe Wynn Macau can effectively command more mass and premium mass visitation. But it’s an effort that will take time and potentially try investors’ patience.

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