Macau Law Grips Casino Finances, Caps Tables, Boosts CSR

January 18, 2022
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Draft amendments to Macau’s casino law confirm no increase in taxes, but impose heavy burdens on junkets and inventory caps on tables and slots, while further tightening regulation and codifying corporate social responsibility (CSR) targets.

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Draft amendments to Macau’s casino law confirm no increase in taxes, but impose heavy burdens on junkets and inventory caps on tables and slots, while further tightening regulation and codifying corporate social responsibility (CSR) targets.

Released via the Legislative Assembly website on Tuesday (January 18), the amendments (in Chinese and Portuguese only) confirm the main details announced at an Executive Council press conference on Friday (January 14), including a maximum six concessions of ten years’ duration.

The documents also confirm the withdrawal of hardline measures floated in September that would have monitored concessionaire decision-making processes at the board level and required companies to obtain permission when issuing dividends.

However, the amendments are extensive and point to greatly enhanced government control over the casino sector and a near-emasculation of junket activity.

Although veto powers over dividends are not in the draft, the Chief Executive of Macau has the authority to block public subscription of concessionaire shares and the issuance of bonds and preferential stock.

The Chief Executive and the secretary of economy and finance also have wide-ranging veto power over major share and property transactions, with shareholders holding more than 5 percent of stock, board members and senior employees newly subject to tough and expansive suitability tests.

Greater de facto control over companies will also be wielded through government influence over Macau-resident managing directors of the concessionaires.

These officers will be required to hold a minimum 15 percent of company shares, and all changes to their status, including temporary yielding of authority to acting staff, will now require permission from the Chief Executive rather than lower-level government officials.

In day-to-day regulation, the amendments codify years of tightening scrutiny by the Gaming Inspection and Coordination Bureau (DICJ), requiring that casino operators provide instant responses and access to DICJ inspectors and store all security and associated data for at least 60 days.

The DICJ will also be required to conduct a comprehensive interim assessment of each concession every three years. The amendments state that any failing grade in this assessment will require rectification within a period determined by the secretary of economy and finance.

The draft document also places a large range of restrictions on junkets, once the main driver of Macau’s gross gaming revenue.

Two of the most significant are a ban on revenue-sharing agreements with casinos, allowing commission play only, and a ban on junkets running VIP rooms under more than one concessionaire.

Despite there being no changes to gaming tax in the draft document, concessionaires will be required to pay a compensatory fund should their gross revenue fall below a government-nominated minimum figure.

In addition, should gross revenue lag the minimum threshold for two years, the secretary for economy and finance may choose to cull operator inventory of gaming tables and electronic gaming machines (EGMs), each of which will have a minimum revenue requirement.

In any case, the Chief Executive will also have the power to issue a formal market-wide cap on gaming tables and EGMs.

Less specific fiscally, but equally wide-ranging, are new requirements for CSR and investment in Macau’s broader polity.

Perhaps reflecting government unease over insufficient non-gaming diversification in the economy, the document itemises non-gaming funding targets for concessionaires.

In addition to guaranteeing employee economic security, promotion tracks and employment of disabled people, casino operators must invest in the development of small-and-medium enterprises, the diversification and development of the local industry, public welfare activities, and educational, scientific, environmental, cultural and sporting activity.

Finally, upholding national security has been added as a primary consideration for the industry and individual concessionaires.

However, the document provides no concrete application of this requirement and reads more as a reminder for companies to avoid mainland Chinese high-rollers, and to be circumspect with their statements as Beijing grows increasingly authoritarian.

Hong Kong-based Bernstein gaming analyst Vitaly Umansky on Friday said the announced changes to the law “should give investors some relief from the uncertainty around Macau’s future”.

“We do not see anything overly negative stemming from the proposed law changes,” he said.

Still, after a day of big gains for most Macau casino operators in Hong Kong and on Wall Street, Hong Kong stocks for the “Big Six” operators were down an average of 2 percent at 3:15pm on Tuesday, as pandemic fears grew and delight over the apparent withdrawal of the most invasive reform proposals waned.

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