A Macau government proposal that the city’s gaming operators should require its prior permission before distributing dividends to shareholders, has “no parallel example within Macau’s legal framework,” says a discussion paper from Macau-based MdME Lawyers, which specialises in gaming-related law practice.
The paper, from lawyers Rui Pinto Proença and Rui Filipe Olivera, stated: “The pursuit of profit as the ultimate goal of a private company is embedded in its legal definition prescribed by the Macau Civil Code and no shareholder can be deprived of its right to share in a company’s profits.”
The lawyers further stated: “It is questionable if the proposed measure will efficiently accomplish its underlying policy goals.”
The measure was part of a package of proposals announced on September 14, as possible amendments to Law 16/2001, the framework for Macau’s gaming concession system. The government that day declared a 45-day period of public consultation on the topic, starting from September 15.
Currently there are six gaming licensees under Macau’s concession system. Their respective permissions expire collectively in June next year, and the government has said the legal framework for the industry must be revised, before a new public tender process can occur.
The law firm identified three key public policy objectives under the dividend-permission proposal: to guarantee continuous investment in Macau’s process of economic diversification – the government has had a focus in recent years on gaming operators investing in non-gaming product; to maximise the benefits generated by casinos to the local community; and to assure the solvency of the gaming concessionaires and thus their financial sustainability.
“It is fair to say that any or all of the above objectives are legitimate. However, the effectiveness of the proposed measure to achieve them is debatable,” suggested Mr Proença and Mr Oliveira.
The dividend-permission proposal “creates a significant disincentive to private investment and does not guarantee that the profits retained will be used to make further investments,” in the opinion of the MdME lawyers.
They added, referring to a dramatic slump in Macau casino operator stock prices in Hong Kong on September 15, the day after the government’s announcement: “Ultimately, the business uncertainty the measure introduces – as reflected in recent market sentiment – may compromise the ability of concessionaires to remain competitive thus affecting their ability to achieve the exact same policy objectives the proposal intends to accomplish.”
The lawyers said there was “no scarcity of legal mechanisms” to ensure the financial soundness of the operators throughout the duration of the concession contracts.
They wrote: “Law 16/2001 already includes the right of the government to request the concessionaires to provide adequate guarantees (including bank guarantees) and to collateralise specific obligations.”
The Macau government also had the option of applying “tried and tested prudential rules, similar to the ones used in the banking and insurance sectors,” or “impose debt-to-equity or asset-to-equity ratios similarly to what already happens in other concession contracts”.
In order to ensure reinvestment in the community, the Macau government “may either determine specific investment obligations for the concessionaires under their contract (what, when and how much) or set spending targets for non-gaming activities and let the concessionaires decide how to better allocate their resources,” wrote the MdME lawyers.
