Macau concession talks to add volatility in 2018: Nomura
Assuming that the debate on the eventual refreshment of gaming concessions in Macau is likely to start next year, Japanese brokerage Nomura said in a note it expects the first round of discussions to involve the licences of SJM Holdings Ltd and MGM China 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 set to expire in 2020.
“A source suggests that discussions will begin mid-2018 for SJM and MGM whose concessions are set to expire in 2020, but to the best of our knowledge, no substantive conversations have begun,” said the Nomura analysts in a note last week.
“As these discussions begin, given the high level of uncertainty and the earnings before interest, taxation, amortisation and depreciation that’s at stake, we expect greater stock price and valuation volatility,” it added.
Macau’s Chief Executive, Fernando Chui Sai On, stated last week that mid-2018 would be an “appropriate” time to provide more details regarding any extension of gaming rights for Macau’s current gaming concessions and sub-concessions.
The Nomura analysts said most Macau operators “agree that they must ‘rebid’; that [the term] concession ‘renewal’ is incorrect in that it does not account for the high bar that the government has set for extending a concession”.
According to Macau’s gaming law, it would be possible for the territory’s government to renew the existing contracts for a maximum period of five years. But once a gaming concession contract expires, the new concession will have to be granted via a public tender.
In July, Macau’s Secretary for Economy and Finance, Lionel Leong Vai Tac, said the government was set to analyse various options – including the possibility of legal amendment to existing terms and conditions – regarding any extension of gaming rights for Macau’s operators.
According to Nomura, successful refreshment of gaming concessions “will likely depend on the operators having delivered on: an adequate mix of non-gaming amenities; compliance with tighter anti-money laundering and know-your-customer regulations; and reinvestment in Macau”.
Nomura additionally said that it “doubts” that all concessionaires would be dealt with on precisely the same footing. “Other factors that could come into play include: ownership structure; relationship of senior management with Beijing; and dividend policies relative to reinvestment practices,” the brokerage said in its memo. It added: “At the end of the day, Beijing has set up criteria that will determine the degree of renegotiation success.”
Speaking to reporters on Sunday on the sidelines of a public occasion, the chief executive of SJM Holdings, Ambrose So Shu Fai, said the existing number of Macau-based casino operators is “sufficient” for the needs of the market. Mr So additionally said that more important for the market was to “control” the actual numbers of live-dealer gaming tables.
Another executive director of SJM Holdings, Angela Leong On Kei, was quoted by Chinese-language newspaper Macao Daily News as saying that the government should announce soon the plans for the refreshment of the gaming concessions. Ms Leong reportedly said the government should establish “a concrete work plan” for the refreshment of the concessions and liaise with the gaming operators, in order to guarantee that the process runs smoothly for all parties involved.
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