Friday’s announcement by the Macao SAR Government clarifying some details of planned amendments to Macau’s gaming law should be enough to ease investor concerns and make the sector investable again, according to investment bank JP Morgan.
In a weekend note, analysts DS Kim, Amanda Cheng and Livy Lyu said a series of key concerns raised by investors after the government first released its proposed amendments to the law in September had now been “greatly alleviated if not removed” – specifically those related to gaming tax, the approval of dividends and appointment of a government delegate to each concessionaire.
As reported by Inside Asian Gaming on Friday, the revised gaming law will allow for a maximum of six concessions to be granted – suggesting the current six are well placed for renewal – with a concession length of 10 years and the possibility to extend for up to another three.
The gaming tax rate will remain unchanged at around 40% including levies, while the government has abandoned an earlier plan to implant a representative within each concessionaire.
Some clarity is still required around the approval of dividends although the government made enough noise to suggest it is not looking to interfere with the ability of concessionaires’ listed companies to run their businesses globally.
“Some of investors’ biggest fears should now be alleviated,” said JP Morgan’s analysts.
“We were surprised the government’s stance on some contentious topics has become far less onerous, if not surprisingly accommodative, in this draft gaming law versus initial plans during the public consultation.”
If there is concern, they added, it revolves around SJM given the government’s stance that satellite casino contracts must be wound down over the next three years, after which time all satellites must be located within buildings owned by a concessionaire. Of the 18 satellite casinos currently operational in Macau, 14 are under SJM’s licenses.
“This may create a lose-lose situation for SJM, which happens to be our least preferred name, as it would have to cease the contract and lose franchise fee (around 15% of pre-COVID EBITDA) or buy-out satellite properties (which is probably a worse outcome, as they wouldn’t generate much if any returns),” the analysts said.
According to JP Morgan, the process of pushing the draft bill through Macau’s Legislative Assembly should take around two months, meaning it remains “possible to have the next set of licenses issued before the current expiry on 26 June 2022.”
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