A “channel check” by Credit Suisse (Hong Kong) Ltd indicates that the Macau gaming-concessions public tender process “is not as straightforward as expected,” with the “government demanding much more non-gaming investment” from the bidders.
The Macau authorities have stated they aim to have up to six, 10-year new concessions, starting from January 1, 2023. The winners will be selected from the seven accepted applicants to the public tender for fresh gaming rights: the six incumbents and one newcomer, GMM Ltd, a unit of Genting Malaysia Bhd.
“After initial presentations in mid-September, Macau operators had another meeting with the Macau government in the last week of September to go through individually the rebidding proposal,” wrote Credit Suisse analysts Kenneth Fong, Lok Kan Chan, and Sardonna Fong.
“From our channel check, the process is not as straightforward/smooth as the operators/ourselves would have thought,” they added in a Monday note.
According to the memo, the Macau government has “banned some ideas” put forward by the bidders, and “requested a much higher investment into non-gaming” as part of the new gaming concessions.
“The government also regarded certain planned expansion of existing projects as part of the prior licence commitment, and is looking for something more in this rebidding,” added the Credit Suisse team. “Besides investment amount, the operators also need to provide a clear spending timetable.”
The tender document announced by the Macau authorities specifies the factors that will be taken into consideration when evaluating the bids. These include: a company’s proposal to expand tourist markets from foreign countries; its experience in operating casinos or other relevant businesses; the benefits for Macau from the bidder’s respective investments in gaming and non-gaming projects; the firm’s plans regarding management of casino operations; its proposal in monitoring and preventing illegal activities in casinos; and its commitment to corporate social responsibility activities.
Investment analysts had already flagged that key financial details regarding the new Macau licences – e.g., size of investment commitment, concession premium, possible lease fee for reverted gaming assets, etc. – were likely to be clarified at the negotiation phase of the tender process.
In Monday’s note, Credit Suisse suggested that the bidders were currently preparing “additional information” for their “meeting this week” with the committee overseeing the tender process. “We understand that most operators need to lift their committed investments,” stated the analysts.
“While our base case expects the six [existing] operators would maintain status quo for another 10 years, the terms of the licence renewal would be a risk worth monitoring,” noted the institution.
“An increase in investment commitment would inevitably put more stress into the already stretched balance sheet of certain operators, as well as lowering the long-term margin for the sector, in our view,” added the Credit Suisse team.
