Government officials and gaming regulators in Macau have been putting together a new framework for the city’s casino industry that was presented to the public last month. The draft rules immediately found resistance, with one rule, in particular, causing a lot of discord. The fallout was so great that casino companies saw their stocks lose $18.4 billion in a single day. To make matters worse, the proposed rule won’t even have the desired effect Macau expects, according to a group of law experts.
Dividends to Be Severely Limited in Macau
In an unprecedented move, Macau wants to change how dividends are distributed by gaming operators. Specifically, they would be greatly reduced, with the goal of forcing the operators to spend more money on developing the SAR’s tourism market. However, the exact opposite is likely to occur, according to MdME Lawyers, a full-service law firm that operates in Macau, Hong Kong and Lisbon, Portugal.
An initiative like this has never been attempted in Macau, which further complicates the issue, as there is no way to gauge its effectiveness. No industry in the city has had its dividend structure altered by the government and Rui Pinto Proença and Rui Filipe Oliveira of MdME Lawyers assert that the limitation is “difficult to harmonize with Macau’s legal framework.”
Instead of promoting sustainable and diversified development, as Macau intends, the rule “creates a significant disincentive to private investment and does not guarantee that the profits retained will be used to make further investments. Ultimately, the business uncertainty the measure introduces (as reflected in recent market sentiment) may compromise the ability of concessionaires to remain competitive, thus affecting their ability to achieve the exact same policy objectives the proposal intends to accomplish.”
Other Alternatives Exist
There are other ways Macau can achieve the same goal, and they have already been tested and proven in the market. Instead of infringing on the rights afforded individuals and businesses under the Macau Basic Law, which guarantees a free enterprise system remains intact, the incoming gaming rules could be written in such a way that casino operators would be forced to make contributions to Macau’s growth efforts. The rules, assert the lawyers, could include measures that address how companies maintain their debt to equity ratio or asset to equity ratio, which would go much further in supporting the SAR’s ambitions.
In addition, the lawyers are confident that those ambitions won’t be satisfied by the new rules. They assert, “It is questionable if the proposed measure will efficiently accomplish its underlying policy goals. It is also clear that such goals, being legitimate, are potentially better achieved by other mechanisms available under Macau’s legal system which do not interfere with the no less legitimate shareholders’ right to distribute dividends.”
The new gaming law structure is currently inside a 45-day public consultation period that ends on October 29. However, the public hasn’t had much of an opportunity to discuss the rules with local officials, as two of the meetings that had been scheduled were canceled because of COVID-19. Local officials have said that they won’t extend the period, which could spell trouble for gaming operators and investors down the road.