In a lengthy paper detailing its decision last month to place Macau’s six operators and their respective credit complexes on Rating Watch Negative (RWN), Fitch analysts said they were confident the three US-controlled firms – Sands China, MGM China and Wynn Macau Ltd – had done enough over the past 20 years to earn the trust of authorities in Macau and mainland China.

“There is no obvious evidence yet that Western-controlled Macau operators will be treated differently by the mainland government,” they wrote, pointing to recent political tensions between the US and China.

“The operating subsidiaries are ultimately owned by Hong Kong-listed public entities, are large local employers, have invested tens of billions of US dollars in capital and consistently promoted the government’s social goals.

“There are also local and Chinese influential figures on the Hong Kong-listed boards of directors (e.g. Pansy Ho for MGM China).
“All Macau operators have been supportive of broader local policy goals. They have ensured employment through the pandemic despite meaningfully reduced revenue and paid billions in US dollar-equivalent gaming taxes over the years.

“In 2016, all six concessionaires scored well during this concession term’s interim review by the government. Criteria included operating conditions, corporate social responsibility and junkets. It’s worth noting that the then-Secretary for Economy and Finance said that no direct relationship existed between the review and the gaming license renewal process.”

Fitch also expressed its belief that the Macao SAR Government was pushing to complete the re-tendering process before the expiration of current licenses on 26 June 2022 – a little over six months from now – noting that the tone of a recent summary report on last year’s public consultation period “supports Fitch’s underlying assumption that the process will take a pragmatic form and be resolved by the expiration date.”

More importantly, the analysts suggest the final outcome of re-tendering expectations are unlikely to be as damaging as some investors fear, although ongoing uncertainty around potential changes to the gaming law and COVID-19 recovery mean the agency’s RWN will remain in place for some time.

“Many variables could ultimately impact future cash flows and balance sheets,” the Fitch report said. “These include, but are not limited to, capital commitments, licensing fees, the ability to upstream cash, gaming tax rate, concession terms, local ownership requirements and the number of concessions.

“No assurances can be made yet on what Macau’s future operating environment will look like, but Fitch still holds that the regulators will take a pragmatic approach given their preference for stability.”

By Ben Blaschke