It is unlikely that the ongoing deterioration of the ties between the United States and China will lead to Macau casino concessionaires with significant American ownership losing their right to run casinos in the city. That is according to a new note by brokerage Sanford C. Bernstein Ltd, focused on the public retender process for Macau gaming rights, linked to the expiry – in June 2022 – of the city’s existing six gaming concessions.
“We view the scenario where one or more of the U.S. casino operators lose their gaming concession to be remote, unless the [U.S.-China] relationship sours significantly further and we see directed action against U.S. businesses in China, which would raise risk levels in Macau as well,” stated Sanford Bernstein in its note, issued on Wednesday.
Macau is a special administrative region of China.
Analysts Vitaly Umansky, Tianjiao Yu and Kelsey Zhu wrote that the “most likely scenario” coming out from the retender process was that “all six concessionaires will have new concessions and there will be no new entrants.”
They added: “The key considerations under such a scenario would revolve around what economic impact the new concession regime would have. There are many levers at the government’s disposal – e.g., altering the gross gaming revenue (GGR) tax, imposing taxation on gaming profits, imposing taxation on dividends, mandating upfront fees.”
Sanford Bernstein noted that the Macau government deciding for “an increase in economic rent” from the city’s casino industry was “not far-fetched”. The brokerage said such view was based on developments in other Asian jurisdictions like Singapore and Malaysia that had gone through licence renewal processes in recent years.
Last year, as part of Singapore’s extension of the existing casino duopoly through 2030, the local government introduced a tiered casino tax structure with increased tax rates, to become effective in March 2022.
The Macau government said last week it planned to have ready by next year a bill amending the city’s gaming law. The local authorities said such a review was a necessary step ahead of a public retender process for Macau gaming rights.
Lei Wai Nong, Macau’s Secretary for Economy and Finance – the official in charge of the city’s casino industry – reiterated at the time that the Macau government had no plans to delay the launch of a fresh public retender process for gaming rights prior to the expiry in 2022 of the current concessions. But he did not provide a timetable for the retender process.
The three Macau operators that are U.S.-majority-owned are Sands China Ltd, Wynn Macau Ltd and MGM China Holdings Ltd. According to some other commentators, the firms could become a hostage to geopolitics when the current six Macau concessions expire in 2022.
Sands China is a subsidiary of Las Vegas Sands Corp, a company headed by Sheldon Adelson. Mr Adelson is identified by several commentators as a supporter of U.S. President Donald Trump.
Wynn Macau Ltd is controlled by U.S.-based Wynn Resorts Ltd. The latter was until recently controlled by Steve Wynn, also on record as a supporter of President Trump.
MGM Resorts International is the parent firm of MGM China.
In its Wednesday memo, Sanford Bernstein concurred that “U.S.-China tensions are now not merely about trade” and “continue to escalate with a slew of U.S. and China tit-for-tat actions and counter-actions.”
This, the brokerage added, was leading to a range of concerns related to the future of U.S.-controlled casino operators in Macau. Such concerns included whether China would retaliate against the U.S. by not giving U.S. operators a new concession in Macau, or by forcing these operators to sell control of their Macau operations – or divest entirely – at low valuations.
Sanford Bernstein noted however that China’s retaliatory actions against the U.S. so far had been “largely restrained with respect to U.S. business operating in China (versus, for example, Australian business which has been targeted directly).”
The Sanford Bernstein analysts stated that it was clear from China’s actions that Chinese authorities were focused on maintaining foreign capital and investment inflows, while pushing for the internationalisation of China’s currency and opening up access to the country’s financial markets.
“Directly attacking U.S. business (especially ones that have been solid partners to the Macau government) is not a very likely course of action,” the brokerage said.
Sanford Bernstein’s note also said the brokerage saw the possibility of six scenarios that could come out of the Macau government’s review of the casino industry. Such scenarios ranged from the unlikely outcome that a current concession holder was not granted a new concession, to a “very liberal” outcome where the concession system was replaced with a “more competitive open licensing system,” which the institution said was also “not likely” to occur.
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Vitaly Umansky, Louis Li and Shirley Yang
Analysts at brokerage Sanford C. Bernstein