Macau May Cut Ties with US Concessionaires if US-China Relation Worsens

Fitch Ratings predicts possible headwinds for the three US-based Macau concessionaires due to the economic shifts. In an unlikely but possible worst-case scenario, Macau might decide to end its relationship with the three companies, Fitch experts suggested.

Fitch Emphasized That the Worst-Case Scenario is Still Unlikely

The three US-based Macau concessionaires include Las Vegas Sands, MGM Resorts International and Wynn Resorts. The three companies have played a major role in the establishment of the special administrative region as a major gaming hub, driving significant tourism every year. The operators are likewise dependent on Macau for a significant portion of their revenues.

However, the ongoing trade war between the US and China could undermine LVS, MGM and Wynn’s relationship with Macau, according to Fitch.

In a rather “highly unlikely” worst-case scenario, the region might decide to not renew or even terminate the operators’ gaming licenses. For context, the licenses are set to expire in 2032.

China has targeted foreign companies following diplomatic disputes in the past, and these actions typically involved increased regulatory scrutiny rather than outright bans.

Fitch statement

Fitch added that a scenario where the three operators are compelled to sell their Macau businesses could become more possible, should the US-China relationship continue to deteriorate. However, Fitch emphasized that this is “not envisaged in the forecast horizon.”

Macau’s Gaming Recovery Stuttered

Macau continues to rely on gambling for a large portion of its revenue, meaning that a conflict with the three US-based concessionaires could have a negative impact on both parties.

To make matters worse, the weaker macroeconomic outlook in China adds to Macau’s woes, suggesting further trouble amid already suboptimal gaming results. The SAR’s gaming revenues have remained flat on a year-to-date basis despite the initially strong post-COVID recovery.

Macau Reminded Operators to Diversify Their Investments

As mentioned, Macau’s post-COVID recovery has so far delivered steady, albeit unspectacular results. Because of that, local authorities recently reminded concessionaires to diversify their revenue streams with more non-gambling investments, per the 10-year gaming concessions they signed two years ago.

The Macau government hopes to step away from its current focus on gambling and create more incentives for tourists to come visit. These efforts are currently being spearheaded by Macau’s secretary for economy and finance, Tai Kin Ip.