Focus on Asia: Never judge a book by its cover By Ben Blaschke, Managing Editor, Inside Asian Gaming November 2, 2021 at 8:00 am In my previous contribution to Focus on Asia, I highlighted what I believed to be an over-the-top reaction by Macau gaming investors to the publication of proposed revisions to the city’s gaming laws. In the space of a day in mid-September, the market capitalization of the Hong Kong-listed entities of Macau’s six concessionaires fell by some 26%, or US$18.4 billion, with investors clearly spooked by what these proposed revisions might mean. To a certain point their concerns were understandable, but they also failed to take into account that things are rarely as good, or as bad, as they seem. Since then, we’ve learned a lot more about the Macao SAR Government’s thinking behind some of these proposed revisions and enough, in my opinion at least, to allay fears that the local casino industry is in their crosshairs. Two of the more pressing issues related to the gaming law – a proposal to appoint a government representative to each of Macau’s casino concessionaires and another to increase the concession share capital required to be held by a Macau local Executive Director – were directly addressed during a series of recent public consultation sessions in which Macau’s gaming regulator, the Gaming Inspection and Coordination Bureau, answered questions from the public. On the government representative issue, the DICJ was asked how this government representative would be selected, whether they would be nominated by the Chief Executive, how many representatives there would be per concessionaire, how the government representative would operate in their supervision of concessionaires, and how the government would ensure that their representative would not be corrupted. In response, DICJ Subdirector Lio Chi Chong made it clear that this was not a new concept for Macau, pointing to the fact that most concession contracts in Macau, including contracts for the operation of public utilities and other forms of gaming, such as sports betting and wagering on horse races, already designate one government representative charged with overseeing the activities of the company related to the concession but without interfering in operations. It should be noted, too, that SJM Holdings’ parent company STDM had a designated representative when it was Macau’s monopoly casino operator pre-2002, while sports betting concession Macau SLOT Co Ltd and horse racing concession Macau Jockey Club remain subject to such a provision to this day. Lio made a point to tell those in attendance that, “whether we send a government representative or don’t send a government representative [it] will not affect the operations of concessionaires.” Also clarified was the issue of capital requirement, with the government’s proposed revisions outlining a proposed increase to the current 10% minimum but failing to detail whether or not this capital requirement could also be adjusted to compulsorily become one of economic and/or voting interest. To explain that in more depth, under Macau’s current gaming law each concessionaire or approved casino management company is required to have an Executive Director, who must possess a Macau permanent ID card and hold at least 10% of the share capital of the concessionaire. However, that holding need not be one of economic interest or voting control, and can be held for the benefit of a parent company or other entity overseeing each concessionaire. Investor concerns have been largely based around what this would look like if it did require actual voting power, which could trigger “change of control” covenants with banks and/or other lenders and potentially create headaches around financing for Macau’s concessionaires. Seeking to clarify those concerns, Subdirector Lio heavily implied that any such revision to Macau’s capital requirement law would not stray from the current application. “Lots of people have been asking about this 10% and I want to emphasize that this rule is already regulated,” he stressed, insisting the change would be in holding only and not in definition. Of course, many questions remain around these proposed amendments, and others, particularly when it comes to distribution of dividends and calls to better define the government’s expectations around non-gaming expansion. Seemingly, even the government has yet to reach agreement on this latter point, with Lio telling attendees of one consultation session, “There is no concrete definition of a non-gaming element yet. We want more opinions, to see how we should define non-gaming elements.” Yet there was clearly enough to recognize that authorities want to work with their concessionaires, not against them, to ensure Macau’s future prosperity. Any suggestion otherwise, for the time being at least, is mere guesswork.