Macquarie: Macau Is Likely to Extend Existing Concessions Beyond Mid-2022

Article by : Helen Dec 30, 2020

Macanese authorities found themselves in a tight spot: all six concessions granted to casino operators in the enclave are set to expire in mid-2022. With the revisions expected to be added to the gaming laws only by the end of the next year, as stated in the Policy Address for 2021, that leaves only about six months for the regulators to open the public tender, collect applications, review them, and grant the new concessions.

Six months may seem a lot, but when it comes to such bureaucratic procedures, it actually isn’t – in fact, it is considered a tight timeline by Macquarie analysts. So, the question on the tip of everyone’s tongue is, “Will the authorities extend already granted concessions?”

According to the analysts at Macquarie Capital, the most likely scenario is where the answer to that question would be “yes.” As written in their report, “With Macau officials focused on the pandemic and economic recovery, odds are increasing that current gaming licences are extended beyond 2022”. They consider one of the two scenarios likely to unfold in the following year and a half. The first one is, “licences are renewed at favourable terms, including no change in tax rates, manageable concession payments, and reasonable non-gaming capital expenditure mandates.”

However, the international relations between the U.S. and China are “deteriorating,” and considering half of the casino operators with already-granted concessions have U.S.-based parent companies, Macquarie deems it possible that the renewal will be for 10 years instead of 20.
As laid out in Article 13 of Law 16/2001, the cornerstone piece of legislation for the casino industry, the concessions can be awarded for a period of up to 20 years. If the concession is given for a shorter period of time, the DICJ (Macanese Gaming Inspection and Coordination Bureau) can extend it – but the total period of time shouldn’t exceed the said 20 years. For instance, SJM and MGM were first granted concessions for 18 years, but back in 2019, the DICJ extended them until June 2022 for both companies after they paid an additional one-time fee of 200 million patacas ($25 million).

Yet, now all six concessionaires expect to have their permits expire in mid-2022, and these permits are already twenty-year-long.

In the second scenario presented by Macquarie analysts, Macanese authorities may decide to extend the already awarded concessions by two or three years and hold the public tender after that. Macanese authorities can grant only three concessions overall – although they found a loophole to make them into six using a dubious legal practice, subconcession.

Morgan Stanley analysts also weighed in on the topic, citing the second scenario as the most likely one to take place. In their report, they lay out the reasons why the new timeline leaves no space for holding the public tender on time: “For open bidding to happen, Macau has to run a public consultation (earlier planned for 2H20), and then put the new law in the AL (the draft is not ready yet), which could take more than a year”. According to their report, the Macanese authorities are likely to make up their minds about the way forward with concessions by June 2021.

The Macanese concession system remains a hot topic for politicians, analysts, and scholars alike. Some say it is time to reform it; some support keeping it as-is. The debate, however, isn’t anything new. Reforming the casino licensing system of the enclave has been mulled over for years – in 2015, for example, Changbin Wang, a professor of gaming law at Macao Polytechnic Institute, published a paper in the Asian Gaming Lawyer advocating for abolishing the concession system and replacing it with a “normal” licensing system.

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Helen

Chief Editor

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