Nikkei Asia: Macao to cut length of gaming concessions in half

Macao to cut length of gaming concessions in half

City to keep casino operators at six, but reduce license term to 10 years

Investors have been anxious for Macao to clarify whether it will change how many casino companies will be allowed to operate or alter key concession terms. © AP

PAK YIU, Nikkei staff writer

January 14, 2022 21:42 JST

HONG KONG -- Macao plans to halve the duration of casino operating rights when it awards new gaming concessions, the government announced on Friday.

The existing rights of the six companies that operate casinos in what until COVID was the world's top gambling hub are due to expire in June.

With that date drawing near, investors have been anxious for the government to clarify whether it would change how many companies would be allowed to operate or alter key concession terms. With three of the existing licenses held by U.S. companies, rising tensions between Beijing and Washington, along with the industry's struggle to rebound from COVID, have weighed on gambling stocks.

Industry observers expect the existing operators to breathe a sigh of relief following the release of the government's draft gaming law amendments as officials confirmed that they will not change the number of operators, raise gaming taxes, restrict payment of dividends or require operators to accept a government representative on their boards. The latter two proposals had sparked particular concern last year.

"This is very positive. It has removed a lot of uncertainty," said Alidad Tash, managing director of gaming consultancy 2NT8 in Macao, about Friday's government plan.

The initial gaming concessions were issued in 2002, but the new ones will last 10 years, with the possibility of a three-year extension.

Under the new terms, operators will be required to notify the government when their licensed subsidiaries distribute capital as well as "uphold national security." Public share ownership in the concessionaires will not be allowed to exceed 30%, but it was unclear if this would apply to just the casino companies' licensed subsidiaries or to the companies, all of which are now listed in either Hong Kong or New York.

A requirement that a local partner hold an equity stake of at least 10% in the concession holder will be raised to 15%. But officials signaled no intention to counteract moves by some casino operators that have made those stakes nearly meaningless by depriving the partner of voting or profit-sharing rights.

"The objective is to make sure we do the right supervision so the gaming industry can develop healthily. It is not to say it would limit the free market," said Ku Mei-leng, chief of staff for the secretary for economy and finance.

"The proposed changes should give investors some relief from the uncertainty around Macao's future," Bernstein Research analyst Vitaly Umansky wrote in a client note. "We do not see anything overly negative stemming from the proposed law changes."

Macao officials conceded there may not be enough time remaining before June for the Macao legislature to review and pass the gaming law amendments and for the administration to launch and conclude a tender for new concessions.

"We will consider extending the current licenses for an appropriate period," Secretary for Administration and Justice Cheong Weng-chon said, without elaborating.

Macao is heavily dependent on the gambling industry, with casinos contributing about 80% of government income. Efforts to diversify the economy had little impact so far.

Gross gaming revenues last year rose 43.7% from 2020 to 86.86 billion patacas ($10.82 billion) but remain far below pre-pandemic levels. Although many mainland Chinese, Macao's top tourist group, can once again travel to the city relatively freely, visitor traffic remains subdued too; visitors from other places remain banned.

In addition to the gaming law amendments, Macao casino operators are also adapting to a changed environment due to a drastic decline in VIP betting, which until a few years ago provided a majority of gross revenues.

The VIP rooms of Suncity Group, the city's top junket operator, shut down abruptly last month after Chairman Alvin Chau was charged with engaging in unlawful gambling operations, money laundering and leading a criminal group. Some other junket agents then chose to curtail their operations or were forced to do so by the casino companies.

VIP gambling's swift decline came after signals that Beijing was turning its attention to the junkets, which had often enabled mainland Chinese high rollers to place high-stakes bets in Macao casinos in circumvention of the country's capital controls.

The Chinese Ministry of Public Security said this week it had arrested more than 80,000 people last year for involvement in cross-border gambling, online betting or illegal payments networks. Authorities in the city of Wenzhou issued an arrest warrant for Chau a day before police took him into custody in Macao.

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