Proposed Amendments To Macau Casino Law Hammer Share Prices

September 15, 2021
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Macau casino stocks have plunged in the US and Hong Kong over proposed changes to legislation that include insertion of public servants into casino operations, tough financial monitoring, local shareholding thresholds and a reduction in concessions.

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Macau casino stocks have plunged in the US and Hong Kong over proposed changes to legislation that include insertion of public servants into casino operations, tough financial monitoring, local shareholding thresholds and a reduction in concessions.

Stateside and Asian investors took fright on Tuesday and Wednesday after the government released its long-awaited consultation paper on casino law reform, with US-based Macau operators falling by 11 percent on Wall Street and by almost 30 percent in Hong Kong.

The Chinese and Portuguese-language paper, released at a press conference on Tuesday by economy and finance secretary Lei Wai Nong and other officials, names nine categories of operator obligations likely to be amended ahead of a tender for new casino concessions.

On corporate and competitive fundamentals, a number of tough and potentially invasive initiatives are on the table for Macau’s next round of casino operators.

Likely top of these is awarding public servants “direct supervisory powers” over each concessionaire, so that the government “may have a greater supervisory capability in the daily operations of gaming companies and directly monitor the economic circumstances of concessionaires”.

António Lobo Vilela, former legal advisor to the secretary for economy and finance and author of the book series Macau Gaming Law, told VIXIO GamblingCompliance that such a move would be unjustifiable.

“In relation to the government delegates, I understand the concern but I think it is a return to the past, not justified by any of the reasons invoked in the consultation document,” he said on Wednesday.

“Macau has not been able to regulate the key casino employees as required by law, and now wants to implement a form of interference in corporate life which, although it comes along the security path that the authorities have imprinted on Macau’s life, is not consistent with the reality of 21st century companies,” he said.

Lobo Vilela expressed concern over the extent of powers that designated officials would wield and whether they would be able to veto decisions of the board of directors.

“Will it have to pass through the scrutiny of the suitability of the American regulatory entities in relation to the concessionaires that have American interests? Will you earn as a civil servant or at the level of the company you supervise?” he asked.

The paper fails to offer meaningful new detail on requirements relating to non-gaming diversification, labour management, talent development or corporate social responsibility, although the paper implies that greater investment in each will be expected of tender applicants.

Such obligations could include minimum investments in Hengqin island, a large land mass to Macau’s west, which the central government has recently placed under joint Macau-Guangdong Province control to promote regional assimilation, although the paper does not state this directly.

The paper also canvasses distribution of a minimum, but unstated, percentage of company shares to Macau residents and that all dividends be approved by the government before distribution.

This imposition on company boards would be part of a wider tightening of scrutiny of casino and junket financials, including daily monitoring, a regular review of company standards and a substantial increase in each company’s authorised capital.

Although the gaming industry has been speculating on the number of concessions available in Macau’s next gaming era, the consultation paper does not offer a number.

While the paper recommends the removal of sub-concessions, it offers no guidance on how to upgrade or dispose of numerous “satellite” casinos that independently operate under three of Macau’s six casino operators.

Still, the paper’s emphasis on “quality” over “quantity” and discussion of competitiveness makes it clear that the government could reduce the number of de jure and de facto concessions from the current six to meet Macau’s interests.

“Restrictions on the number of concessions do not amount to a reduction in market competitiveness,” it says.

Lobo Vilela noted that the Portuguese wording in the document suggests “restrictions” alludes to reductions of licences in this case, although the paper does not definitively state that this will occur.

In any case, the paper says, “too many concessionaires could create destructive competition and perhaps even greater levels of non-compliant conduct, increasing difficulty in supervision and affecting Macau’s hard-won international reputation as a recreation and leisure hub”.

The paper further hints that the next concessions will be valid for considerably less than the 20 years enjoyed by current operators, but offers no specifics.

It also does not address the extension of current concessions in view of delays to the tender process caused by the coronavirus pandemic.

Finally, the paper supports a streamlined system of penalties for concessionaire offences, as well as a five-year jail term for illegal deposits with casinos or junkets. The latter offence would extinguish high-interest junket investment schemes and punish any person facilitating such deposits.

The paper also calls for punishment for non-cooperation with or obstruction of gaming regulators while performing their duties.

US casino stocks with Macau exposure slumped on Tuesday, with Las Vegas Sands down 9.8 percent to $38.71, Wynn Resorts down 10.9 percent to $92.25 and MGM Resorts International down 3.9 percent to $41.41. On Nasdaq, Melco Resorts & Entertainment fell 5.9 percent to $11.95.

The damage in Hong Kong was much more dramatic, with Sands China plunging 29.1 percent to HK$17.70 at 1:55pm. Wynn Macau was down 27.5 percent to HK$6.53 and MGM China was down 21.9 percent to HK$6.15.

Chinese casino stocks Galaxy Entertainment Group and SJM Holdings were down 17.7 percent to HK$40.30 and 18.8 percent to HK$5.72, respectively.

The government will hold four public meetings and one industry meeting to discuss the consultation paper, starting with the industry event on September 20 and concluding with a public event on October 19. The Gaming Inspection and Coordination Bureau (DICJ) also welcomes public correspondence on the paper until October 29.

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