Macao Business: Musical Chairs

Musical chairs

By Tony Lai

9 Oct 2022

Maintaining status quo for stability, no new land for integrated resorts are among some of the reasons most observers don’t bet on the possibility of Genting Group to edge out one of the six incumbents for a new licence in the Macau gaming market, but a few perceive its ties with Beijing might help the firm to pull off a surprise win

It’s unexpected but not surprising to see Malaysia-based multinational gaming conglomerate Genting Group throw its hat into the ring, taking on the six incumbents for six available spots in the development of the Macau gaming industry in the next 10 years. Nonetheless, it’s a daunting challenge for the firm headed by Malaysian billionaire Lim Kok Thay to prove their credentials in this quest.

A total of seven bids were submitted and accepted for the public tender of up to six 10-year Macau gaming concessions, which will begin after the current six licences expire by the end of this year. The seven bidders include the six existing operators and GMM Ltd, which is an indirect subsidiary of Genting Malaysia, part of Genting Group. The government committee, which oversees this process, is now analysing the bids after engaging in discussions and consultation with the seven companies, and a preliminary result of the concessions is expected to be announced in November.

“It is unlikely for a government to choose a new foreign operator over incumbents, who have invested billions of dollars and employed local staff over two decades, including in an unprecedented downturn like this,” brokerage JP Morgan said in a recent research note, referring to the slump of the Macau gaming industry that has been battered by the COVID-19 travel restrictions and Beijing’s crackdown on cross-border gambling in the past three years.

According to multiple gaming analysts, the total amount of investments in Macau by the six existing operators—namely, Galaxy Entertainment Group Ltd, Sands China Ltd, Wynn Macau Ltd, SJM Holdings Ltd, MGM China Holdings Ltd, and Melco Resorts & Entertainment Ltd—totalled over US$50 billion in the past two decades, and they are among the biggest employers in the territory.

“Why would the current six be let go? They’ve got everything the government has asked them to do: they have properties, they have employees, [and] they have 20 years of history,” Macau-based gaming analyst Alidad Tash remarks.

“I’m not surprised [Genting tendered a bid] … but what I’m saying is that I just think that they won’t get it,” says Mr Tash, managing director of consultancy 2NT8 Ltd. “Why would the government just go and take another company from the outside?”

The incumbents have also expressed confidence amid the challenge from Genting. “We’re confident because over the last 15 or 16 years, we have really supported the Macau government’s vision in terms of developing non-gaming diversifications. Entertainment has always been in our DNA,” Lawrence Ho Yau Lung, chairman and CEO of Melco, said when submitting a bid for his firm in September. A similar sentiment is also echoed by Pansy Ho Chiu King, co-chairperson and executive director of MGM China Holdings Ltd, who said: “The gaming operators in Macau always support the entire community and follow different policies from the government.”

“Why would the current six let go? They’ve got everything the government has asked them to do: they have properties, they have employees, [and] they have 20 years of history,” Macau-based gaming analyst Alidad Tash remarks

Two in one

Besides the track record of the “big six” in Macau, another hurdle GMM has to overcome is how and where the company, if selected as one of the winners, can operate gaming and non-gaming offerings, because the local government has repeatedly indicated there would be no new land plots in Macau zoned for the development of new integrated resorts. The administration has only guaranteed that the 19 casinos directly owned by the six concessionaires and sub-concessionaires at the moment would revert back to the government at the lapse of their licences by end-2022, and some of these gaming venues could be leased to a new winner in the future if needed.

But this will result in a situation in which an integrated resort will be run by two separate parties for gaming and non-gaming offerings, respectively. “There is no clause in any of the land-use rights agreements for the existing IRs [integrated resorts with expiry dates going beyond 2030] that would trigger a transfer of non-gaming assets to the government upon licence termination,” brokerage Citigroup said.

“Could a scenario appear in which Macau awards a gaming licence to GMM, while the non-gaming businesses at that IR (hotels, malls, entertainment) remain with an incumbent? We think such a combo would prove extremely difficult to operate… and is thus unlikely,” the investment bank said.

However, another Macau-based gaming analyst Ben Lee thinks it’s not difficult to resolve this problem. “If an existing concessionaire does not get a new concession, it will be in their interest to do a deal with the winner,” the managing director of IGamiX Management & Consulting illustrates, or the incumbent that has failed to win the bid would lose money for running resorts without casinos.

“Could a scenario appear in which Macau awards a gaming licence to GMM, while the non-gaming businesses at that IR (hotels, malls, entertainment) remain with an incumbent? We think such a combo would prove extremely difficult to operate,” says brokerage Citigroup

Treasure Island

He also highlights Genting might still have interests in the hotel-and-shopping mall project—Treasure Island Resort World—located next to Grand Lisboa on the Macau peninsula, an ideal site for GMM to run a gaming resort. “That project is originally due to open by the end of this year, which would be perfect timing for them to convert [part of the facilities] into a temporary casino,” he says.

Genting Hong Kong, a unit of Genting Group, bought a 75-per cent share in the land plot of Treasure Island Resort World in 2007 from local entrepreneurs Yany Kwan Yan Chi and others, but later sold 37.5 per cent of shares to local businesswoman Ao Mio Leong—who is linked to the hotel project of Macau Roosevelt next to Macau Jockey Club in Taipa—in November 2020. The Hong Kong unit, which filed for bankruptcy earlier this year, has expressed intention to ditch all the shares in Treasure Island, but it is not immediately known whether the firm still holds any interests in the project at the moment.

Treasure Island Resort World, covering an area of 8,100 square metres with a total construction cost of about MOP4.7 billion (US$583.8 million), will provide 600 hotel rooms, while its shopping mall will feature French department store brand Galeries Lafayette and others. But the government has never said the site could accommodate a casino.

Local director

Another question concerning GMM’s bid is its local face, as the Macau gaming law requires a permanent Macau resident to be the managing director of the concessionaire and to hold at least 15 per cent of the shares of the firm. Lim Kok Thay, Lee Choong Yan, and Koh Poy Yong are listed as administrators of GMM in commercial registration documents. While Mr Lim is the chairman of Genting Group, Mr Lee is the president and chief operating officer of Genting Malaysia and Ms Koh is the chief financial officer of the firm. All the three executives are believed not to be Macau residents.

There are speculations and reports that Mr Yany Kwan might serve as the local face of GMM if it wins a licence—GMM is incorporated in the same Macau office address as several companies linked to Mr Kwan. One of the representatives for GMM during the submission of bid in September is Fong Yee Wai, who works in Vacations International Travel Service (Macau) Ltd linked to Mr Kwan, according to the commercial registration documents.

But both Ms Fong and GMM did not reply to questions seeking for comment in this story, and Mr Kwan was not immediately available for comment. Mr Kwan, who is reported to still own part of the shares in Treasure Island Resort World, engages in the businesses of travel, shuttle service between Macau and Hong Kong via the Hong Kong-Zhuhai-Macau Bridge, and others; he is also a member of the Shenzhen Municipal Committee of the Chinese People’s Political Consultative Conference (CPPCC).

Partnership with incumbent

Brokerage Sanford C. Bernstein is also not optimistic about the odds of the Malaysian tycoon’s firm winning a Macau licence and remarks that its possible entry to the Macau market is to partner with one of the six incumbents. “We believe Genting is positioning itself as a prospective partner or buyer of an existing operator in the event that a concession holder experiences financial difficulties and may require a partner or could be open to being acquired, with government consent,” the investment bank says.

In a recent talk show about the new gaming tender, Davis Fong Ka Chio, a local gaming scholar and former government-appointed legislator, also flagged about the possibility of Genting working with one of the incumbents. “All these seven bidders all have their own unique advantages… It’s possible that some of them might form a partnership, resulting in a situation that every party is happy,” the director of Institute for the Study of Commercial Gaming at the University of Macau said.

Though it seems to be a tough battle, a few observers believe Genting might emerge as a winner after its failed attempt two decades ago. In the liberalisation of the local casino industry in 2001-2002, Mr Lim submitted a bid under the name of Macau Star, S.A in the first public tender of gaming concessions. However, 20 years ago, the company finished sixth out of 21 bidders and was denied entry into the Macau market because the local authorities initially granted only three concessions, which later evolved into three concessions and three sub-concessions.

“Macau may prefer the incumbents for their track record in helping local employment, but Genting Group has surprised the market previously by winning New York City and Singapore competitive bids,” said brokerage Morgan Stanley. Besides the flagship resorts under the brand of Resorts World in Malaysia and Singapore, Genting also operates casinos and resorts in the Philippines, New York, Las Vegas and the United Kingdom.

Ties with Beijing

In the perspective of iGamiX’s Mr Lee, the Malaysian conglomerate has a good shot in winning a licence. “One big advantage Genting has is its experience and willingness to invest in theme parks. Macau has talked that up in the past, and all the existing six operators—despite Galaxy [Entertainment Group] talking about it—walked away from the idea,” he says “Genting is the only one with the ability and the propensity to build and run a theme park.”

One of the major requirements for this new tender process is that bidders have to demonstrate in their respective proposals the types of non-gaming offerings they would develop in the city and the ways for them to attract more overseas travellers to Macau. National security has also been a focus with the new gaming law—approved in June—giving power to the government to revoke a gaming licence in concerns of the matter.

The background of Mr Lim, who is an ethnic Chinese, and his ties with Beijing might help Genting’s chance in the tender, edging out one of the three incumbents from the United States amid the geopolitical tensions between the U.S. and China. “In the most recent Winter Olympics held in Beijing, Genting was featured heavily in the local press with its ski resort that hosted one or a couple of the ski events in the Winter Olympics,” Mr Lee adds. Genting Resort Secret Garden, which is located in Zhangjiakou, Hebei province, staged the freestyle skiing and snowboard skiing events during the Beijing 2022 Winter Olympics.

“This new concession tender is being very carefully managed, and only the parties that are deemed patriotic, sufficiently patriotic, will get the new concession,” the analyst concludes.