Macau’s recently revealed proposals to alter the special administrative region’s (SAR) gaming laws are “credit positive” for the six concessionaires operating there, according to Moody’s Investors Service.
Last week, authorities in the world’s largest casino center unveiled proposals to gaming law, including reducing license terms to 10 years from 20 years (there’s an option for a three-year renewal at the end of the first decade). They also mandated concessionaires must boost minimum share capital to roughly $625 million from just $25 million. A managing director that’s a permanent Macau resident must hold 15 percent of share capital, up from 10 percent.
However, those requirements aren’t as rigid as markets originally feared. Investors cheered the bill because, as Moody’s puts it, the proposal “removes significant regulatory uncertainties.” The draft legislation also makes clear the license renewal process is likely to commence ahead of the June expiration, that the market isn’t opening to new operators, and that there will not be restrictions on dividend payments.
We continue to expect Macau’s six gaming operators to renew their concessions,” said Moody’s. “Non-renewal of any of the concessions would pose substantial risk to government finances and economic stability in Macau because of the significant amount of employment the industry generates.”
Macau’s Legislative Assembly is holding on a first reading and initial vote on the bill on Jan. 24.
Overhang Gone. Investors Like It.
Last year, Macau casino stocks were among the most repudiated in the gaming equity space amid fears of tighter regulations.
US-based operators Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), which control seven integrated resorts there, bore the brunt of that punishment — a scenario that was amplified because of geopolitical tensions between the US and China. To start 2022, the script is flipped, as the removal of regulatory overhang is sparking a rally in those names. Year-to-date, LVS is up 16.68 percent, and Wynn is higher by almost five percent, while the S&P 500 is in the red.
Analysts are taking note, with some rushing to lift ratings on LVS — the largest Macau operator.
“We believe the new gaming law significantly lowers risk for LVS: Six concessions are preserved, and the 10-year term would make it less attractive for any new entrants to invest in building a new resort,” said UBS analyst Robin Farley in a Wednesday note to clients. “The phasing out of satellite casinos will also reduce competition – we estimate that satellite casinos make up between 15-20 percent of total tables in Macau. And importantly, the law draft does not contain dividend payout restrictions.”
Credit Matters
Moody’s doesn’t comment on the possibility of credit upgrade for the various Macau concessionaires. But the view that the gaming law proposal is “credit positive” is significant. That’s because many of the operators carry notable amounts of debt, and some already sport junk ratings.
For example, the research firm placed a negative outlook with a B2 rating on Wynn Macau last month. That company carried $5.77 billion in Macau obligations at the end of the third quarter. The credit ratings agency grades Sands China Baa2 with a negative outlook. That operator had $6.55 billion in debt as of June 30, 2021.
Moody’s adds that lingering travel restrictions in China are likely to lead to several more quarters of lethargy in terms of Macau visitation. They claim that an earnest rebound in mass market traffic isn’t likely to materialize until next year.
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