A proposal by the Macau government to introduce limitations to the distribution of dividends by casino concessionaires to their shareholders has no parallel example within Macau’s legal framework, with the stated policy goals likely achievable via other mechanisms available under the legal system, according to a new paper from MdME Lawyers.
The controversial dividend proposal was one of the more notable to emerge from possible amendments to Macau’s gaming law announced by the government on 14 September. While those amendments are currently subject to a 45-day public consultation period running until 29 October, details contained within the consultation document were enough to send the share prices of the Hong Kong-listed entities of Macau’s six concessionaires into freefall, dropping 26% or US$18.4 billion in just 24 hours.
In the first of a series of papers exploring the proposed gaming law amendments in more detail, MDME’s Rui Pinto Proença and Rui Filipe Oliveira note that the proposed dividend limitation is “difficult to harmonize with Macau’s legal framework”, with no such requirement having ever been introduced even as they relate to the concession contracts of essential public services like water and electricity supply.
Although the stated objectives of the proposal – ensuring profits are better applied to promoting the sustainable and diversified development of Macau – are seen as legitimate, MdME says it “creates a significant disincentive to private investment and does not guarantee that the profits retained will be used to make further investments.
“Ultimately, the business uncertainty the measure introduces (as reflected in recent market sentiment) may compromise the ability of concessionaires to remain competitive thus affecting their ability to achieve the exact same policy objectives the proposal intends to accomplish.”
Instead, MdME suggests finding alternatives within Macau’s legal framework to reach the proposed goals without affecting the fundamental rights of shareholders under a free enterprise system, as provided in the Macau Basic Law.
These alternatives, it says, could include writing specific investment obligations or spending targets for non-gaming activities into the license contracts of concessionaires – therefore allowing the concessionaires to better allocate their resources. They could also include the imposition of prudential rules around each company’s debt to equity or asset to equity ratios.
“It is questionable if the proposed measure will efficiently accomplish its underlying policy goals,” MdME states.
“It is also clear that such goals, being legitimate, are potentially better achieved by other mechanisms available under Macau’s legal system which do not interfere with the no less legitimate shareholders’ right to distribute dividends.”
MdME’s full paper can be found here.