GGRAsia – Macau bidders tapped for non-gaming opex, not capex: CS

Macau bidders tapped for non-gaming opex, not capex: CS

Oct 28, 2022 Newsdesk Latest News, Macau, Top of the deck

A new generation of Macau casino concessionaires might each have to spend between HKD10 billion (US$1.27 billion) and HKD20 billion across 10 years, on non-gaming activities pledged in return for gaming rights issued by the local government, says a Friday note from Credit Suisse AG.

The memo was a summary of what it understood from its “checks” was the state of negotiations between the Macau government and seven bidders each vying for one of the six new, 10-year concessions on offer via a public tender.

It meant, said the bank, that the Macau industry would move from a focus on capital expenditure – which has been exemplified by the large-scale developments in the Cotai district during the 20-year concessions issued at the turn of the century – to an operating expenditure phase. Such investment would be based on an events-driven strategy, added the institution.

The Macau government has indicated it would not make available fresh land for casino schemes during the period of the next concessions.

“We estimate a total of HKD10 billion to HKD20 billion per operator” on non-gaming spending, “across 10 years,” wrote analysts Kenneth Fong, Lok Kan Chan, and Sardonna Fong, citing checks done by the institution.

“On a very conservative basis by assuming an operator could only recoup 90 percent of operating expenditure,” on such non-gaming activity, “the annual net spending would be a contained HKD100 million to HKD200 million per operator, or approximately 1 percent to 2 percent” of industry earnings before interest, taxation, depreciation and amortisation, added the Credit Suisse team.

The government has said it hopes the new concessions can begin in January. Macau’s six incumbent operators have made bids, along with GMM Ltd, a unit of Genting Malaysia Bhd.

“So far, the discussion has been mainly about non-gaming investment. We believe there will be one more meeting before the announcement of the provisional gaming licences by mid-to late-November,” stated the financial institution.

Credit Suisse said that according to “industry participants”, the Macau government had “already asked several operators” to start preparing for non-gaming functions or events from 2023 onward. “This indicates the government is very keen to wrap up the process,” suggested the bank.

The institution stated that a likely focus under the new concessions on operational rather than capital expenditure, could be a “win-win” for each side. This was on the basis the Macau authorities want to reduce the city’s dependence on tourism from mainland China, and bring in more overseas visitors.

“We believe a line-up of world-class events will enhance the sustainability, uniqueness and attractiveness of the sector,” wrote the analysts. They added that such investment could also result in additional non-gaming revenue for the operators, as well as “positive spill-over to gaming revenue”.

“It is much better than building more casinos,” of which Macau already had “plenty” said Credit Suisse.

The bank added, referring to the choppy trading conditions amid ongoing Covid-19 containment measures for China as a whole: “For the operators, given the uncertain recovery outlook and relatively stretched balance sheet, lower capital commitment that spread across a longer period would also allow flexibility for them.”