Casino group Genting Malaysia Bhd had not been a favourite to displace any of the current veterans of the Macau market via the city’s public tender process, due to practical issues including what would happen to the non-gaming infrastructure created by the incumbents, says a veteran industry observer with first-hand knowledge of Macau’s gaming sector.
The commission overseeing the city’s public tender to award new 10-year casino concessions announced on Saturday the list of “provisional winners”. Macau’s six incumbent casino concessionaires saw their respective proposals selected by the commission.
A proposal by a Macau-registered entity linked to Genting Malaysia, GMM Ltd, was not among the preferred bids, stated the commission in a press briefing.
“Genting was always facing an uphill battle to displace an existing concessionaire,” said David Green, founder of consultancy Newpage Consulting Ltd and a former gaming regulator in Australia, in comments to GGRAsia.
He is also a former adviser to the Macau government on gaming. Mr Green was part of a consulting team from accountancy firm Arthur Andersen LLC, hired by the city’s government to advise on casino-market liberalisation at the turn of the current century.
He added: “The benefits of incumbency cannot be overstated. Even if Genting had presented an otherwise-winning bid, it must be remembered that the concessions relate only to the operation of casinos.
“The reversionary rights held by the [Macau government], only entitle it to possession of the casino premises and gaming equipment if a concession is terminated. This presents a significant practical impediment to awarding a concession to a new player, as the hotels, retail, entertainment and non-gaming facilities generally associated with a casino would remain under the control of the displaced casino concessionaire.”
Mr Green was referring to the fact that Macau’s six incumbent casino operators were all granted years ago land rights by the city’s authorities to develop their current large-scale casino complexes, which feature casinos, but also hotels, restaurants, shops, and an array of other attractions.
Under Macau’s legal system, if one of the incumbent firms was not granted a fresh casino licence, it would need to revert to the Macau government only its gaming assets – i.e., casinos and gaming equipment – at each of its Macau resorts. The rest of each property – i.e., all its non-gaming venues – would still be controlled by the displaced operator after its gaming licence lapsed.
During Saturday’s announcement of the tender results, the government representatives at the event stressed a number of times the need to ensure the “stability” of the city’s gaming industry and the “safeguarding” of the employment of Macau ID holders.
Analyst Samuel Yin Shao Yang, from Maybank Investment Bank Bhd, told GGRAsia that feedback he received from investors in Genting Malaysia indicated they were “actually not disappointed” that the firm missed out on a Macau licence.
“They just don’t see Macau turning around so soon”, he added, in reference to the lacklustre performance of the city’s gaming industry in recent years. “Genting Malaysia investors still take a dim view of Macau.”
For his part, Mr Green told GGRAsia: “I suspect that Genting may have not expected to win a concession in its own right, but rather present itself as a suitable prospective casino operations manager in the event that any incumbent decided, or was forced by the constrained gaming market, into becoming a property company.”
Door still open
Genting Malaysia has a casino monopoly in its home market via the Resorts World Genting complex, and also runs casinos in the United States, the Bahamas, the United Kingdom and Egypt. The Genting group also operates a casino resort in Singapore, via Genting Singapore Ltd.
Macau is one of the major gaming jurisdictions where the Genting companies do not have a presence. The group had also made a submission in the Macau concession tender that took place at the turn of the current century, but was not selected.
Investment analysts and industry observers had previously stated that they did not expect the Genting group to displace a current veteran of the Macau market in the public tender process.
In a memo issued on Sunday, investment bank JP Morgan Securities (Asia Pacific) Ltd said the Genting group might “still want to participate via equity/joint venture investment” in the Macau market “if prices are right and the government is okay”.
JP Morgan added that the decision by the Macau government to persist with the six incumbents was “great news”.
“One of the biggest overhangs of recent years [regarding Macau’s gaming industry] is now removed,” stated analyst DS Kim.
He noted that the “only known unknowns” regarding the new licences were the minimum investment requirements for the next 10 years and the annual concession premium to be paid by each operator. That information was not disclosed during Saturday’s press conference.
JP Morgan said it estimated the minimum investment requirements to range from US$2 billion to US$3 billion-plus per operator, “with bigger operators” such as Galaxy Entertainment Group Ltd and Sands China Ltd “spending on the higher ends”.
