The Macau casino industry would like “clarity” from the authorities regarding the eventual refreshment of the existing gaming concessions, says Ambrose So Shu Fai (pictured), chief executive of casino operator SJM Holdings Ltd.
The concessions of the six current Macau operators expire on various dates in either 2020 or 2022, with the respective licences of SJM Holdings and MGM China Holdings Ltd set to expire in 2020.
“Of course, everybody would like to have clarity about the [gaming licence refreshment] policy,” said Mr So on Thursday.
“This is everybody’s wish; that the [Macau] government would put forward certain criteria in terms of renewal of the contracts,” he stated, speaking on the sidelines of a Chinese New Year gala dinner hosted by SJM Holdings.
The Macau government has commissioned two studies on the possible development of the city’s gaming sector in the period between 2020 and 2030. One topic for consideration is how many gaming licences should be allowed in the market in the aftermath of the expiry of the current rights.
Macau’s gaming law states that the licences of the existing holders can be extended for a maximum of up to five years from their original expiry dates. But once a gaming concession contract expires, any new concession would have to be granted via a public tender. In that sense, say gaming lawyers familiar with the matter, there is no such thing in the Macau context as a “concession renewal”.
Commenting on the eventual approach of the government to gaming rights refreshment, Mr So stated: “The government already said it would have a new… tender, which I think technically is correct as the current law only allows an extension for up to five years, which is not enough when you invest such a big amount of money [in new projects]. We will follow the requirements but, of course, we want to have more clarity.”
SJM Holdings’ first Cotai project, Grand Lisboa Palace – with a price tag of HKD36-billion (US$4.6-billion) – is according to the firm’s own commentary, only due to open in 2019. Such large schemes typically take several years to reach break even.
The SJM Holdings CEO said the industry incumbents were not expecting a negative outcome after the current concessions expire. “Everybody is very optimistic about the renewal of the licences because they [casino operators] have been here for 20 years and contributing to the society,” said Mr So.
“I think everybody will get an extension, at least that is what the perception of the market is. As we are the only one with roots in Macau, I think we have a very high chance [of having the gaming licence extended],” he added.
Asked if there would be enough room for a seventh concessionaire, as it has been suggested by some investment analysts covering the Macau gaming market, Mr So said: “That, I don’t know. But I think there is enough space for the six operators.”
On Thursday, Mr So said that SJM Holdings was still aiming to complete construction of Grand Lisboa Palace this year, in order to start operations in 2019.
The CEO said the firm was not concerned about being the last of the Macau gaming firms to construct a Cotai resort, as the move would eventually help expand the firm’s business.
“We still hold the majority of the market share on the Macau peninsula… Getting to Cotai is just about competing in a new market together with them [the other operators],” said Mr So. “We think that our market share will grow, because we remain very strong on the peninsula and we will start competing with all the other concessionaires in Cotai.”
Development of the Grand Lisboa Palace has been plagued with delays. Work on the property was suspended by the Macau government for 44 days last summer after the death of a worker on June 18.
The Cotai project had also been “adversely affected” by Typhoon Hato in August last year, the company had said in its third-quarter results bulletin. The site has also been plagued by several fires of uncertain origin, the latest reported one in late September.
Brokerage Sanford C. Bernstein Ltd said in a note earlier this month that it expected Grand Lisboa Palace to open in “late 2019 or even early 2020”.
“Based on our research into the current phase of development, our view is that opening will more realistically be late 2019 and potentially spill over into early 2020,” said analysts Vitaly Umansky, Zhen Gong and Cathy Huang.
The brokerage stated it had concerns about how quickly the property would be able to ramp up, citing SJM Holdings’ “lack of experience in running large scale properties, operating in Cotai and operating a premium mass business”.
“Until Grand Lisboa Palace opens, SJM will continue to lose market share and show low profitability, on our projections,” said the Sanford Bernstein team.
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