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Will Pansy Ho tough it out in the STDM succession race or play it safe at MGM Macau?

Sunday, 01 May 2011 16:53
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Pansy Ho could sell all her equity interest in MGM China Holdings after it lists in Hong Kong later this year—and theoretically still keep her role as the managing director of the MGM Macau gaming concession.

But if she wants to run STDM—the investment holding company built up by her father Dr Stanley Ho that is ultimately the parent of the SJM casino concessionaire in Macau—she would need to give up any executive role in the MGM Macau set up.

The ‘Licence Contract of Macao Special Administrative Region for the Operation of Games of Fortune or Chance or Other Casino Games’ says in Article 20, headed ‘Forbidden to serve concurrently in the company’s statutory body’:

“The concessionaire undertakes not to appoint as a member of the board of directors, or as an officer of the general meeting, or as a member of the statutory audit committee or other governing body, any person who is a member of any governing body of any other concessionaire, sub-concessionaire or concessionaire management company engaged in the operation of games of fortune or chance or other casino games in Macao Special Administrative Region.”

It was this rule that caused Dr Stanley Ho to give up his chairmanship of Hong Kong-listed Melco in 2006 prior to his son Lawrence setting up a Macau gaming sub-concession in a joint venture between Melco and Australian entrepreneur James Packer. Another good reason for Dr Ho stepping back from Melco was that Australian gaming regulators were reluctant to sign off on the Lawrence Ho-James Packer tie up as long as Dr Ho was anywhere in the picture.

When Melco first started exploring a casino development tie up in Macau with Mr Packer’s Publishing and Broadcasting Ltd (PBL) back in 2003, it quickly became apparent that using an SJM licence for such a venture wouldn’t wash with the Australian authorities.

Dr Ho and the Australians had ‘history’ as they say—dating back to the 1980s and 1990s. No less than three Australian states and one Australian territory rejected him when he applied to take controlling stakes in casino ventures there. In the end, Mr Ho junior and Mr Packer opted in March 2006 to pay US$900 million for a sub-concession from Steve Wynn’s Macau gaming licence rather than persisting with the plan of using an SJM licence. Even then it took gaming authorities in the Australian states of Victoria and Western Australia until that September to give their approval for the joint venture following a two-year investigation.

Pansy Ho potentially faces with her STDM/MGM Macau situation the same regulatory double bind presented to her father in the SJM/Melco scenario. But in Ms Ho’s situation it would potentially be American rather than Australian regulators on her back.

Even without Article 20 of the Macau gaming licence contract, Ms Ho would be hearing from US gaming regulators pretty quickly if she made a move to run STDM without selling down in MGM Macau. The US authorities have always kept her father at arm’s length because of his alleged links with triads. But they weren’t so fastidious back in 2002—when the new gaming licences were being divvied up—as to tell US gaming companies they couldn’t sign up for concessions in a Macau market where Dr Ho was going to continue being a major player.

According to a filing with the US Securities and Exchange Commission, after the flotation of MGM Macau in Hong Kong (via MGM China Holdings), Ms Ho will be reducing her stake in the joint venture to 29%. This would leave MGM Resorts International with a controlling 51%, Pansy Ho with 29% and public investors with 20%.

Options

But if Ms Ho doesn’t want an executive role in STDM she could sell down to zero equity in MGM China Holdings and still theoretically stay as managing director of the MGM Macau concession.

That’s because under Macau law, the company that holds the actual gaming concession or sub-concession is separate from the company responsible for day-to-day casino operations or the ultimate parent company listed outside Macau. The specifically local entity holding the gaming permit is known under the Macau Commercial Code as a sociedade anónima. Provided Ms Ho keeps 10% of the issued share capital of the sociedade anónima, she can still qualify as managing director of the concessionaire even if she had zero equity in MGM China Holdings. Macau’s Legal Framework for the Operations of Casino Games of Fortune—otherwise known as Law 16/2001—says in Article 7:

“The operation of games of fortune and chance is reserved to the Macau Special Administrative Region and may only be conducted by sociedades anónimas incorporated in the Region, to whom a concession shall be granted through an administrative agreement, under the terms of the present law.”

Article 19 of the same law requires that all gaming concessionaires and sub-concessionaires be run by a managing director who holds at least 10% of the share capital of that sociedade anónima, irrespective of any holding that managing director may have in the company responsible for day to day casino operations. It states:

“The management of concessionaires shall be mandatorily delegated to a managing director.

“The managing director mentioned in the preceding paragraph must be a Macau Special Administrative Region permanent resident and holder of, at least, 10% of the share capital of the concessionaire.”

Article 19 also stresses that managing director role is also subject to the approval of the Macau government.

“The delegation of the management of the concessionaire, including the appointment of the managing director, the scope of its powers and the duration of the delegation, as well as any amendment thereto, including the replacement, definitive or temporary, of the managing director, is subject to the prior authorization of the Government, otherwise being null.”

If Ms Ho does want to run STDM, however, what will that mean for the recently announced STDM/SJM succession arrangement? Under a deal brokered between Dr Ho, a family faction led by Pansy Ho and Dr Ho’s fourth consort Angela Leong, Ms Leong is supposed to be confirmed as an Executive Director of SJM Holdings for a guaranteed period of six years. But if Ms Ho plans a hands-on rather than ceremonial role at SJM’s parent STDM (via the Lanceford shares formerly held by her father), that could put a different complexion on the situation—especially once Dr Ho is no longer around to act as umpire.

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