Jim Chanos is betting against battered US casino stock Wynn as Macau's crackdown kicks in, saying it's 50% overpriced
- Jim Chanos holds a short position against US casino stock Wynn, saying it's 50% overpriced.
- Wynn's exposure to the potential overhaul of the gambling industry in Macau should not be ignored, he said.
- The US casino's stock was last trading around $82 per share on Tuesday, but Chanos said it's worth around $40.
Jim Chanos, the veteran short seller who predicted Enron's collapse two decades ago, said his firm is betting that Wynn Resorts's share price will fall, given Chinese authorities are turning up the heat on casino operators.
Chanos, the founder of Kynikos Associates, told CNBC Monday he has taken a short position in the US casino stock, which he believes is 50% overpriced. That's based on the market value of a stake in Hong-Kong listed Wynn Macau, and on the more than $5 billion in debt held by the US parent company.
Wynn is one of several casino operators in Macau that face an overhaul of rules around licensing and a tightening of supervision by authorities. The autonomous region is the only place on the Chinese mainland where gambling is legal.
Last Tuesday, Macau's local government said it has begun a 45-day consultation period in its review of the rules.
Wynn and other casino operators are supposed to make rebids for their casino licenses, which expire in June 2022. But they have yet to get clarity about what they need to do, CNBC reported.
"For years, we've said that people are ignoring the concessions are at risk that expire next year," Chanos said. "The law expires June of next year and has to be re-written ... We think that the very lucrative Macau concession is going be at best cut back, and at worst, be cut back dramatically."
Hong Kong-listed stock in Macau casinos plummeted between 16% to 28% on Wednesday, as spooked investors digested the potential overhaul.
In the US, shares in Wynn tumbled as much as 18% last week. The stock was last trading at $82.11 per share on Tuesday, and is down 27% so far this year. But Chanos said that price level is too high.
"It's one of the most expensive casino stocks out there," he said. "Wynn should be trading in the 40s right now."
Chanos may have decided that Wynn is a candidate for short selling - which allows an investor to profit if the value of an asset they're betting against falls - but other traders appear to be making cautious bets on the casino operator. According to data from the Wall Street Journal, 36% of analysts have a buy rating for the stock, 63% have a neutral rating, and 9% have a sell rating.
JPMorgan downgraded Wynn from neutral to overweight last week.