Fitch Ratings Inc says it anticipates the Macau government will take a “pragmatic” approach to the expected public retender of Macau gaming rights that will be occasioned by the upcoming expiry in 2022 of the existing six public concessions.
The credit ratings house added it expected the three concessionaires with links to United States-based groups to be on a “level playing field” with their Chinese-focused counterparts. Some commentators have speculated that the U.S.-China trade war – if it were to drag on – could somehow have a negative impact on China’s attitude to the U.S.-linked incumbent casino operators.
The commentary was in a report it issued on Monday, following what the institution said were field trips to Macau and to the casino duopoly market of Singapore in the week beginning Monday, October 28. There Fitch analysts were said to have met “most” of the Macau concession holders, as well as representatives of the firms promoting the Singapore resorts Marina Bay Sands and Resorts World Sentosa.
Fitch Ratings’ analysts Colin Mansfield and Alex Bumazhny wrote in the report, referring to the Macau leg of the trip: “We came way confident that the government’s approach to the 2022 concession rebid will be pragmatic and a priority for the new Chief Executive as he takes office in December 2019.”
The Chief Executive-designate is Ho Iat Seng. The amendment of Macau’s gaming law framework – also known as Law 16/2001 – would be one of the key tasks to be addressed by the new administration, said Mr Ho in September. Such amendment is expected to include provisions regarding the number of gaming licences to be issued once the current ones expire in June 2022, and whether the current sub-concession system would be abolished, Mr Ho noted at the time.
Macau retender milestones
Fitch said that would be the first “milestone” to watch for as it might also clarify the tenure period for fresh concessions, and what percentage of tax on gross gaming revenue might be applicable. The current effective rate is nearly 40 percent. After that, the next key event to watch out for would be the conditions to be set by the Macau government for the gaming concession retender process.
“The Chief Executive does have executive power to extend all [current] concessions for five years, though we put a low probability on this occurring,” Fitch Ratings’ analysts wrote.
“We expect the U.S.-based concession holders to be treated [as] on a level playing afield with their Asian counterparts given the large amount of foreign investment, positive local sentiment on the concession holders (jobs, local investment), and adverse impact the effective nationalisation of gaming could have on broader foreign investment in China and its Special Administrative Regions,” the ratings house noted, referring latterly to Macau and Hong Kong.
The three Macau gaming licensees with U.S.-based parents are: Sands China Ltd, via Las Vegas Sands Corp; Wynn Macau Ltd, via Wynn Resorts Ltd; and MGM China Holdings Ltd, via MGM Resorts International.
Three of the current six operators in the market – namely Sands China, MGM China and Melco Resorts and Entertainment Ltd – were allowed in to the Macau market via a piece of legal improvisation. They actually run Macau gaming via locally-incorporated companies that are technically sub-concessions spun off from the Macau rights, respectively, of local units of Galaxy Entertainment Group Ltd, SJM Holdings Ltd and Wynn Macau.
The prospects for the Macau existing gaming concession holders could be weighed down by the risk of a “seventh concessionaire”; incremental fresh investment being required; and increases to the city’s gaming tax rate, the rating house said. But it noted that such risk was in likelihood “manageable”.
In terms of Macau gaming market outlook, Fitch Ratings said the industry was not optimistic regarding the VIP gaming segment in 2020, which could face “additional downside risk” if China-U.S. trade tensions were to “escalate” – and have a negative impact on Chinese business owners, the sort of high-value players for whom Macau traditionally caters.
Within the Macau mass gambling business, the premium mass segment was also being affected by China’s macroeconomic conditions; but this had not “materially affected” Macau’s overall gaming performance, the ratings house said.
For the Singapore casino sector, the Fitch Ratings team said it was “neutral” on the fresh capital investment pledges made by the duopoly operators Las Vegas Sands and Genting Singapore Ltd, to the city-state – in exchange for the duopoly’s continuation – “as they entail additional debt (at least for Marina Bay Sands) and the agreements come with an increased tax rate and entrance levy”.
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Vitaly Umansky, Kelsey Zhu and Tianjiao Yu
Analysts at brokerage Sanford C. Bernstein