Macau casinos to invest $12bn over next decade
Macau casino operators seeking a license in the largest gambling hub in the world will reportedly invest around 100 billion patacas ($12.4bn) in total over the next decade.
There are currently seven applicants vying for the six available 10-year license slots. These concessionaires include six current casino operators in the city, Wynn Macau, Galaxy Entertainment, Sands China, SJM Holdings, MGM China, and Melco Resorts. Genting Malaysia is the new entrant in the Macau casino industry and the seventh company contending for one of the six spots.
If they retain their concessions, Galaxy Entertainment and Sands China will likely invest over 20 billion patacas ($2.4bn) each. Other casino operators in the city will invest around 15 billion patacas each, which will amount to about 100 billion patacas for the six winners.
DS Kim, a JP Morgan analyst, released a report on Monday that called the investment commitment of each operator a reasonable amount. Kim also noted that it was only a third of the total amount all six operators have invested in the past decade.
“The reported investment commitment of US$1.9 billion to US$2.5 billion per operator – is very reasonable. The amount is only about a third of the US$35 billion that the six operators have invested over the past 10 years, but suggests one big renovation or development project plus some flagship events or shows over the next decade,” Kim said.
“This level of investment should be gladly accepted by the six incumbents. The question, however, remains for Genting, which does not have any assets in Macau. This means it will have to acquire existing assets and commit to additional capital expenditures if it receives the concession.”
JP Morgan revealed that it expected the six current casino operators to earn a spot. Genting Malaysia, on the other hand, would have to resort to “equity investments or via a joint-venture structure.”
Analysts and executives, however, are of a different opinion. According to them, the seventh company was a credible contender, which in the race for license renewal, could displace an incumbent Macau operator. This could trigger one of the biggest shakeups in the gambling industry in over two decades.
Macau’s six incumbent operators have been in the Special Administrative Region (SAR) since 2002. Their current concessions will expire at the end of the year. Earlier this year, the SAR’s government tightened its gambling laws and halved its license duration to 10 years. While six licenses will still be issued, the concessionaires will need to put more local permanent residents in high management positions.
According to reports, negotiations with the China SAR government have almost concluded after the seven hopefuls turned in their respective bids in September. Each bidder has reached an agreement concerning what they intend to do within the 10 years of operation the new license provides. The 10-year license term will start in 2023 and end in 2033.
In June, the authorities noted that the concessionaires needed to present detailed plans that would aid in the development of foreign tourist markets.
“Hopefuls must present detailed plans for developing foreign tourist markets and describe the benefits Macau can expect from gaming and non-gaming investments,” the requirement read.
They were also to describe what Macau hoped to achieve from both gaming and non-gaming investments as well as corporate social responsibility efforts. Hours before the tender ended on September 15, Lim Kok Thay, the billionaire chairman of Genting Malaysia, turned in a last-minute bid under GMM Limited, which is linked to the Malaysian company.
In the latest meeting, the Macau government revealed concerns about the bidders’ proposals and how it paid little attention to investing in non-casino elements. The casino operators were expected to continue investing in local events such as the Macau Grand Prix and other music festivals.
Concessionaires were also to bring international talents to Macau and may likely open up new museums. The government restated that it would not issue any extra land for gaming facilities. The venues will have to develop on their current facilities in the future.
As of Monday, the Hong Mong shares of operators like SJM, Sands China, and Galaxy were at HK$3.38, HK$18.74, and HK$45.60, respectively. MGN China, on the other hand, rose by 3.66% to HK$4.81, and Wynn Resorts recorded a 4.42% increase to HK$4.49. By Friday, Melco Resorts increased by 12.32% to US$7.38 on the Nasdaq.
The new licenses bidding comes at a time when China’s “dynamic zero COVID” policy has dealt a significant blow to casino revenues in the past two years. Although some travel restrictions have been relaxed for mainland visitors, revenue from the gambling industry will face difficulty returning to its former position, at least in the near term.