Photo by Michael Nagle/Xinhua)

Investor panic following gaming law revision proposal excessive – Analysts

Most of what was announced by Macau SAR authorities concerning intentions for the future revised gaming law had been hinted at previously, and albeit some unexpected surprises that could be negative for the sector, gaming analysts consulted by Macau News Agency considered that the consequent investor panic was unwarranted.

On September 15 Macau authorities launched the public consultation with respect to revising a gaming law and industry framework first enforced 20 years ago.

The consultation document identifies the main elements under consideration, namely, social responsibility; non-gaming development; strengthening government supervision and strengthening penalties for violations.

The perceived increase in government control of future concessionaires led to a sell-off in gaming operators stock that erased more than US$19 billion in market value from Macau casino stocks over two days.

On the day of the announcement Sands China’s shares plunged by 33 per cent while Wynn Macau tumbled 29 per cent, Galaxy dropped 20 per cent, while MGM China retreated by 26.8 per cent, SJM fell 24 per cent while Melco declined by 20 per cent.

“Most of the Macau government’s announcement on Tuesday was telegraphed in advance, so with few exceptions, it was not a surprise. On the whole, it was negative; but should it have warranted Macau’s gaming companies to lose a third of their value? Definitely not,” Alidad Tash the managing director at 2nt8 Limited, a consultancy specializing in international casinos and integrated resorts, told MNA.

Macao Polytechnic Institute gaming industry researcher, Carlos Siu Lam, also considered the level of investor pessimism to be “excessive” and went as far as considering that the situation for gaming concessionaires is “much better than last year” when there was a Covid-19 pandemic shutdown.

“I don’t understand why the stock price was worse than that time. In fact, I personally think that the situation has improved,” the gaming researcher noted to MNA.

A total of MOP61.4 billion (US$7.7 billion) in gross gaming results has been reported between January and August of this year or about 21 per cent of the total results reported in 2019 pre-pandemic but a considerable improvement from the record lows seen in 2020.

For Lam, the gaming law proposals were not unexpected as the Macau government has been issuing a number of laws and regulations related to gaming in the past years to pave the foundation.

“For instance, the money laundering regulations, the new structure of Gaming Inspection and Co-ordination Bureau (DICJ) in mid-June. With the appointment of new chiefs, DICJ is better prepared for the future,’ Professor Lam added.

Secretary for Economy and Finance Lei Wai Nong and Gaming Inspection and Co-ordination Bureau (DICJ) Director Adrano Ho introducing the new gaming law revision public consultation document on September 15

A bylaw on the Organisation and Operations of the DICJ enforced in June increased the maximum cap of personnel at the bureau from 192 to 459, including a double in the number of inspectors from 159 to 324.

Analysts previously told MNA that the rejig could help resolve the shortage of inspectors that have plagued the watchdog for years, as well as consolidate the authorities’ grip over the gaming industry.

Still, Tash agreed that the vagueness of the government intentions “introduced uncertainty” which will likely last for the 45 days during which the public consultation will be carried out.

The government will hold five consultation sessions through October 29, including discussions with gaming operators and junkets, with a first session to be held on September 20 with industry representatives, and four public sessions on September 29, October 3, 13 and 19.

Authorities will then have a 180 day period to publish the final consultation report after which the gaming law draft will be submitted to the Legislative Assembly.

In comments to TDM Tv this week,  the President of Macau Lawyers Association, Jorge Neto Valente commented that the presentation of the announcement was “not ideal” and that there should be clarification on the extent of the government’s interference in the industry.

“We still need to know up to which point those delegates will interfere with the board’s decisions. That is what’s missing and the law should state it as soon as possible. The soonest that is clarified, the most tranquil we are,” Neto stated.

The public consultation document expresses intentions to increase oversight by authorities on gaming operators operations, dividend distribution, and the percentage held by Macau residents, with the government proposing for official delegates to be appointed to oversee concessionaires.

“I personally assume that it is something similar to the reps for other concessionaires like Macao Water. Depending on the investment required by the government for the non-gaming segment. If this is the case, they are expected to monitor the concessionaire on behalf of the government and they receive remuneration from the government. I don’t think in daily operation unless some negligences found,” Lam considered.

The government also recommends that operators must meet certain requirements and obtain government approval before distributing profits, no matter whether it be in cash or shares, and the percentage of shares owned by the local Managing Directors should increase from the current 10 per cent minimum.

“No company wants additional scrutiny, as it implies impropriety […] increasing the local ownership cap from the current 10 per cent led some investors to (incorrectly) presume that it gave permission for the American casinos being sold off. That is not the case,” Tash noted.

The document is clear that the current sub-concession status will be removed, however, no indication was provided on the possible number of allowed concessions and even if the sub-concessions will be converted into full-fledged concessions.

According to Tash, this led many investors and analysts to misinterpret its meaning as representing that sub-concessionaires will lose their license.

“It was the exact opposite. The three sub-concessions are being upgraded to concessions”

Only three gaming concessions were granted during the 2002 casino liberalisation process to SJM Resorts Ltd, a subsidiary of SJM Holdings Ltd; Wynn Resorts (Macao) SA, a subsidiary of Wynn Resorts Ltd; and Galaxy Casino SA, connected to Galaxy Entertainment Group Ltd. 

An issue that was not clarified by authorities in the document is the possible duration of the new concessions, with the Macau government seemingly implying that the current 20-year term may be too long.

“The fact that the next set of licenses won’t be 20 years was expected, but seeing it explicitly stated scared off the non-professionals,” Tash added.

The analyst considered that the recent actions by Chinese authorities to rein large corporations in from tech to tutoring also led investors to conflate the intentions for the local gaming sector as part of an overall crackdown.

Chinese authorities have cited anti-competitive practices and protecting customers’ personal information as reasons the country’s tech titan giants, including internet services company Tencent Holdings and e-commerce leader Alibaba Group Holding.

President Xi Jinping later initiated a crackdown on the tutoring industry, with the aim to help create a more harmonious society by levelling the education playing field for children across the country.

“All in all, there was enough fuel in the recent statement, as well as the overall environment, to cause a perfect storm,” Tash concluded.