Concession renewal to strengthen government influence

The renewal of the gaming licences will give more power to the local government to influence the decisions of the operators.
This is the view of a research note published by Daiwa Capital Markets, following an interview with local legislator José Pereira Coutinho.
“Among some of the possible changes under consideration is giving the government a greater ability to exert further influence over the operators”, the report of the analysts Jamie Soo and Adrian Chan reads.
“In Mr. Pereira Coutinho’s view this could involve shortening the new concessions terms (from 20-25 years currently), and/or amending the existing laws and regulations and to add specificity in areas that the existing framework does not adequately address.”
Currently, three gaming licences in Macau’s gaming sector have been awarded to SJM Holdings, Galaxy Entertainment Group and Wynn Macau, while MGM China, Melco Crown and Sands China are sub-concession holders.
Sub-concessions troublesome
According to the calculations of Daiwa Capital Markets, the sub-concessions together generated MOP108 billion (US$13.5 billion) in 2015, or 46 per cent of the region’s total gross gaming revenue, which stood at MOP230.8 billion.
However, the renewal of the sub-concessions is seen as potentially troublesome by Mr. Pereira Coutinho, mainly because it may lead to a public outcry, given that these concessions were never put up for public tender.
By contrast, in November 2001 the three original licences were put up for public tender in a field of more than 20 bidders.
“Strictly speaking, there is no legal definition of what specifically constitutes a gaming sub-concession and Macau’s Gaming Law technically does not acknowledge or regulate the granting of these sub-concession licences”, the report explains.
“This situation gives rise to potential issues upon the 2020/22 licence renewal. Despite the gaming sub-concessions being essentially functionally independent of the gaming concession and sharing the same legal obligations and status, their elevation closer to full concession status may create complications as sub-concessions were never put up for public tender.” Process unlikely to be timely or orderly
The view of Daiwa Capital Markets is that it is a “stretch” to consider the possibility of any of the casino operators not having their gaming licence renewed through the renewals process.
“Legally and technically, the gaming concession should be reopened for bidding once the 25 years is up”, it is explained.
“That said, given that the six operators have continued to invest significant resources in casino projects, it is a stretch to imagine the government driving out any of the six incumbent concessionaires when their terms technically expire”, they remarked.
Nevertheless, the Japanese brokerage firm says that the concessions renewal “process is unlikely to be timely or orderly . . . given the lack of clarity”.