Macau Cuts Casino License Tenure, Caps Public Float in New Law
Macau Cuts Casino License Tenure, Caps Float as Controls Tighten
(Bloomberg) -- Macau plans to give a maximum of six casino licenses for terms extending to 13 years and limit the public float of gambling operators as part of much-anticipated legal changes aimed at tightening government oversight on the world’s largest gaming hub.
The licenses will carry a term of 10 years which can be stretched by another three years, according to a government briefing Friday. The Macau administration also wants to increase the proportion of local ownership in casino firms from the current 10% to 15%.
The bill will now be sent to the local legislature for approval and is near-guaranteed to pass, given Macau’s lawmakers rarely vote against any government proposals.
The new gaming legislation brings some relief around the renewal of gaming licenses, which are due to expire by June, as it paves the way for the six current casino operators to retain their licenses. For months, investor anxiety was swirling over the possibility of harsher norms and operators being pushed out.
Yet the move to cap public floats came as a surprise as it was not included in the original proposal. Its impact is not immediately clear: while public floats will be capped at 30%, officials said this would only be for license-holders. The six casino operators see their licenses currently held by subsidiaries and not their listed arms.
The public float cap is to “improve supervision for the healthy development of the gaming industry,” Ku Mei Leng, Chief of Macau’s Office of the Secretary for Economy and Finance said at the briefing. “It’s not to limit market freedom.”
The new law overall appears mostly gentler-than-expected, pleasing investors. U.S.-listed casino stocks with operations in Macau rose after the briefing.
Some Respite
Officials also backtracked on some unpopular proposals, saying that there was no need for government representatives to be placed on the board of casino companies. The final contours of the law should offer some respite to a gaming hub that’s been pummeled by the Covid-19 pandemic and China’s crackdown on its grey market lending practices. The index of Macau casino operators plunged 47% in 2021.
“The measures seem to be reasonable as maintaining six licenses, with 10 years, still encourages them to invest with good return,” said Steven Leung, sector analyst at Uob Kay Hian (Hong Kong) Ltd. “I think the public float is a major concern from the government because gaming may involve capital outflows and money laundering. So a public float limit is needed.”
The government has no plan right now to adjust the level of taxes on casino companies, officials said at the briefing. Casino operators currently need to pay 40% of their gaming revenues as taxes. Current licenses will also stay in place until the new law is implemented, they said.
China has a larger plan to transform the $24 billion Macau economy, reduce its reliance on gambling and recast it as a global leisure and tourism hub. The new gaming law proposal comes at the heels of a months-long crackdown by Beijing on Macau’s role in enabling capital outflows by allowing the country’s rising elite to bet in freely convertible Hong Kong dollars.
Shock Waves
The enclave’s roughly $3 billion VIP gaming revenue was hit badly after authorities arrested Alvin Chau, chief executive officer of Suncity Group in November and sent shock waves through an industry that was already under siege from growing government intervention. The company operated Macau’s largest junket business that serviced high rollers and extended credit to them.
Macau’s gaming revenue was merely $7.5 billion in 2020 as the first wave of Covid-19 hit the gaming hub. It recovered a bit in 2021 with $10.8 billion in gaming revenue but was still down 70% from its pre-pandemic level as it suffered the double whammy of a regulatory crackdown and a dearth of customers because of China’s strict border curbs.
Several Covid-19 outbreaks forced the Chinese government to temporarily suspend quarantine-free travel between the city and the mainland -- its main source of visitors -- from late September to mid-October.
New lockdown-like restrictions due to omicron flareups have created a tough time for casinos, according to Joshua Crabb, a fund manager at Robeco Hong Kong Ltd. “I think some certainty around regulatory outlook is a a positive at the margin,” he said.
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