IAG delves into an intriguing change in Macau’s new gaming law: the increase in minimum capital requirement for each Macau concessionaire from MOP$200 million to MOP$5 billion.
Article 17 of Macau’s new gaming law concerning the capital shareholdings of concessionaires mandates that their minimum capital requirement throughout the entirety of their concession period must be no less than MOP$5 billion (US$625 million), paid up either in cash or bank drafts, and concessionaires cannot use this capital before launching their operations.
This means that following the conclusion of the upcoming public tender for gaming licenses, any potential new concessionaire must have at least MOP$5 billion in cash on hand before operation. This is the threshold for entry into operating a casino under the new law. This new capitalization requirement is 25 times the previous minimum of MOP$200 million (US$25 million) stipulated under the original 2001 gaming law.
Is this MOP$5 billion amount reasonable?
Ignoring the suppressed revenues experienced throughout the COVID-19 pandemic, Macau’s gross gaming revenue has soared since liberalization – from MOP$22.2 billion (US$2.8 billion) in 2002 to MOP$292.5 billion (US$36.6 billion) in 2019, representing a 13-fold increase. Likewise, gross domestic product (GDP) of MOP$59.2 billion (US$7.4 billion) in 2002 has climbed over seven times to MOP$434.7 billion (US$54.3 billion) in 2019.
Thus, if the calculation of the minimum capital requirement for concessionaires is based on economic growth, the reasonable amount should range between MOP$1.5 billion (US$188 million) and MOP$2.6 billion (US$325 million).
But the amount of MOP$5 billion is still within the affordable range for the current six gaming operators in Macau, even if some may need an injection of fresh capital into their Macau-registered concession-holding legal entities to comply.
In a June note outlining the standing of the concessionaires in this regard, Credit Suisse analysts identified Sands China as the only one which id not at that time meet the MOP$5 billion (US$625 million) minimum capital requirement under the new Macau gaming law, although this “can be easily resolved [by a] capital injection from the listed [company] to the license-holding subsidiary.
“According to the disclosures reported to the regulator DICJ, Sands China’s concessionaire remains the only entity with equity falling below the threshold,” they explained, noting that the company’s net assets of MOP$1.7 billion (US$213 million) would require a capital injection of MOP$3.3 billion (US$413 million) – presumably from the parent listed company – to meet the new minimum capital requirement.
Nonetheless, while all six existing operators are capable of doing so, this new MOP$5 billion threshold could deter some overseas investors from bidding for a Macau license.
Speaking with Inside Asian Gaming, a local scholar, interviewed on the condition of anonymity, observed that the increase is not friendly to overseas bidders because, due to COVID-19, the current business environment of the Macau gaming industry is not what it was. China’s clampdown on outbound gambling, stricter requirements under the new Gaming Law and the emergence of rival jurisdictions across Asia further hamper industry attractiveness.
“The [minimum] registered capital is not harsh for the current six gaming operators,” the scholar said. “But this MOP$5 billion ‘admission fee’ will undoubtedly make overseas bidders mull over the necessity of investing in Macau in the current economic climate.
“Although the Gaming Law has revised many regulations to make the industry healthier, it is not ‘friendly’ to overseas investors. The registered capital of MOP$5 billion is just one example.”
In the second half of this year, the Macau SAR Government will launch the public tender for gaming licenses in accordance with the new Gaming Law, but details of the tender have not yet been published. The government should unveil the details of the public tender as soon as possible so that interested parties from all over the world can prepare their bids.
