Macau puts casinos in the cross hairs to stem capital flows and tighten daily operations, sending stocks into a tailspin
- Macau is soliciting public feedback through October 29 on how the gambling sector, which contributes to 80 per cent of tax receipts, should be overhauled
- The public are being asked for feedback on rules including state oversight, remittances of dividends, and a plan to slash the number of gambling tables
The 45-day consultation will ask the public to give their feedback on a raft of rules including additional government oversight, permission for the remittances of dividends, and a proposal to slash the number of gambling tables. JPMorgan Chase slashed its ratings today on six casino operators to either “neutral” or “sell”, reversing its “overweight” call made as recently as July 20, citing investors’ doubt about the industry’s outlook amid the regulatory curbs.
Gambling, which is banned in mainland China because it’s anathema to Communist Party doctrine, has been legal in Macau since 1850 under Portuguese colonial administration. When Macau reverted to Chinese sovereignty in 1999, the gambling operations and the concessions were maintained.
Over two decades, gambling revenue in Macau grew to surpass Las Vegas seven times over, becoming the world’s casino hub. Still, Chinese President Xi Jinping made Macau’s casinos a target of his anti-corruption campaign in 2012, banning party cadres and government officials from gambling.
Macau’s gambling industry contributes 80 per cent to the city’s tax coffers every year. The industry played a positive role in the city’s development, but it also left some societal issues and deficiencies in its supervision, according to Lei Wai Nong, Macau’s Secretary for Economy and Finance at a press conference on Tuesday.
The consultation will run through October 29 in five hearing sessions for the public to comment on nine different aspects, including the number of concessionaires, the duration of their licences, supervision of their businesses, criminal liability and non-gambling businesses.
“We admit it’s only a ‘directional’ signal, while the level of actual execution still remains a moot point,” JPMorgan said. “That said, we think this announcement would have already planted a seed of doubt in investors’ minds.”
The number of licenses will remain unchanged at six, according to Morgan Stanley.
Still, concerns linger that the licensees will be subject to operational oversight that crimp their income and hurt their businesses.
One such proposal is for casinos to get government approvals before they can distribute their dividends, whether in cash or shares.
“While it’s unclear how strictly the government would control their capital, we believe the hefty dividends of pre-Covid days, especially those by Sands China and Wynn Macao, would be scrutinised if not restricted,” JPMorgan said.
The government also proposed to raise the shareholding levels of Macanese directors in the concessionaires from the current 10 per cent, as well as appointing monitors to supervise daily operations.
The move is “worrying,” said Ben Lee, the managing partner of the gambling consultancy IGamiX in Macau. “It is unclear how the government supervises the normal commercial operations. That draws a layer of uncertainty over the sector,” he said.