A Macau government proposal that its approval should be required before local casino operators could distribute dividends to shareholders came as a “surprise”, management at Macau licensee SJM Holdings Ltd was cited as saying in an investor call organised by Goldman Sachs (Asia) LLC.
But SJM Holdings representatives indicated – said the institution in a Sunday note – that the dividend-oversight idea was “understandable” in light of possible Macau government concerns about operators’ liquidity.
Borrowing large amounts via capital markets – for Macau infrastructure development – on the promise of future earnings, while also maintaining investor dividends, had in pre-pandemic times been a common practice in parts of the Macau casino sector.
“[SJM’s] management sees the dividend distribution requirement as a surprise, but said it is understandable. Looking back in prior years, they note certain operators have distributed much dividend and almost gone into negative equity,” wrote Goldman Sachs’ analysts Simon Cheung, Alpha Wang, Carrie Jiang and Leah Pan.
The team added SJM Holdings’ management had “no insights on any threshold of dividend payout”.
The institution added the casino operator believed it would be “up to the operators themselves to decide their payouts and/or share repurchases, and the add-on is that it will be subject to government review”.
Local-shareholder requirement
Macau’s existing gaming law requires that at least “10 percent” of the gaming concession entity’s share capital has to be held by a “managing director” who is a Macau permanent resident. The government’s proposals suggest upping that shareholding portion.
Angela Leong On Kei, an executive director at SJM Holdings, is managing director at the concession-holding entity, SJM Resorts Ltd.
“In practice,” the person nominated as managing director of the concession entity “does not necessarily hold economic interest” via that role, in terms of entitlement to profits or dividends, noted Goldman Sachs, citing remarks from SJM’s management.
“His/her main duty is to communicate with government on all licence-related issues,” observed the institution.
Goldman Sachs added, citing SJM Holdings: “The [consultation] document only states that the government considers raising local non-economic ownership and has no mention about ‘economic interest’.”
The locals’ shareholding topic merited further government explanation, said a SJM Holdings’ representative, lawyer Rui Cunha, in a Monday public consultation session between the government and the industry regarding the proposals.
Another government suggestion, sending delegates to casino businesses to oversee their activities, “may not be a bad thing”, according to the Goldman Sachs note, citing SJM Holdings’ management. The latter thought it would be at the level of the concession-holding entity, rather than at listed company level, and so should neither impact casino operators’ overall business, nor affect their capital allocation.
Management at SJM Holdings was also cited as saying the Macau government might opt to “extend” – as permitted under the current gaming law up to a maximum of five years – the existing gaming rights of the six concessionaires. As things stand, the original 20-year rights are due to expire in June next year.
Management at SJM Holdings “consider 10 years as a reasonable length” for brand new concessions, on a par with Singapore’s licence duration, said Goldman Sachs.
