Security and consulting company Steve Vickers & Associates (SVA) issued a warning to investors today in which it addressed that the ‘steep deterioration’ in US-China relations, coupled with the ‘savage impact’ of the coronavirus outbreak, poses serious threats to foreign firms engaged in the Macau gaming industry.
The security company noted that that the unrest in Hong Kong in late 2019, and the spread of the coronavirus in early 2020 have taken a major toll on the SAR’s gaming industry, with the impact only compounded by increased frictions between the US and China over trade, the pandemic, Hong Kong and the South China Sea.
Local gross gaming revenues dropped 73.7 per cent year-on-year to some MOP33 billion (US$4.1 billion) in the first five months of this year.
Tensions between the Trump administration and Chinese authorities have recently heated up, following a Chinese National People’s Congress (NPC) decision to approve a proposal to draft a Hong Kong national security law, which would punish secession, subversion of state power, terrorism and acts that endanger national security.
The US State Deparment quickly deemed Hong Kong no longer suitably autonomous from China and threatened to impose targetted sanctions that could impact business in the region.
SVA added that the rising tensions could overshadow the future plans for the 2022 gaming concessions public tender and was a ‘huge vulnerability’ for the current six gaming concessionaires.
‘Assumptions of ‘business as usual’ are misplaced. After all, Beijing will surely ask whether US-controlled casino companies should profit mightily at the expense of China’s gamblers,’ the security consultancy company warned.
‘The commercial argument for US involvement – that Chinese companies needed American expertise – is derelict. Macau is now of age and its casinos and junket promoters can often provide services better geared to the Chinese market than those offered by American companies.’
SVA added that Chief Executive Ho Iat Seng promise of providing more information on the gaming law review and future tendering process in the second half of this year was ‘late in the process’ given the scale of the investments in play.
‘Beijing chose Ho Iat Seng in part owing to his limited links to the gaming industry, meaning that he would prioritise national goals over local interests. Indeed, Ho had already hinted at a brief to clean up the industry, perhaps by trimming the number of satellite casinos in operation, or by rooting out some of the less savoury junket promoters,’ the company risk warning noted.
‘This stance had cast doubts on the prospects of large junket promoters securing a concession on their own merits. Now, Ho’s mandate seems liable to stretch to geopolitics’.
Therefore SVA believed that local authorities could gear the tendering process in a way as to ensure the loyalty of those operating in Macau, perhaps by favouring local champions, or by scaling down the role of foreign concessionaires.
‘Moreover, should relations deteriorate further, the Chinese and Macau authorities have a wider range of options to hand, ranging from squeezing out foreign interests to punitive action against US concessionaires,’ the note added.
‘Certain companies present obvious targets, given links to the Republican Party, while others, perceived as loyal, or, at least, compliant, could benefit – but perhaps at the expense of interests in the US’.
Las Vegas Sands and Wynn Macau founders, Sheldon Adelson and Steve Wynn, are know prominent donors to the US Republican party.
Still, SVA considered that direct or punitive action against US companies remains unlikely, however, it warned businesses that must accept that they are operating in a ‘much harsher political and economic climate’.
It then recommended for investors to take precautions, including, evaluate geopolitical exposure, so as to identify those companies likely to suffer in the event of a descent into ‘tit-for-tat’ actions; monitor enforcement measures on capital outflows, so as to establish whether regulatory action is liable to affect Macau’s casino sector; and to take stock of the risks posed by counterparties, such as major banks, casino companies or junket promoters, so as to brace for any systemic shocks.
SVA is a specialist risk mitigation, corporate intelligence and risk consulting company based in Hong Kong.