Analysis-Genting aims to upend Macau casino landscape in bidding war By Reuters

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Reuters: HONG KONG Analysts and executives say that the Malaysian conglomerate Genting has emerged as a serious candidate to topple an existing Macau casino operator for a new licence, potentially setting in motion the most significant upheaval in the world’s largest gambling centre in over two decades.

According to the Macau government, only six slots will be available for the seven applicants, with Genting Malaysia competing against the six concessionaires Sands China (OTC:), Wynn Macau (OTC:), Galaxy Entertainment, MGM China (OTC:), Melco Resorts, and SJM Holdings (OTC:), whose concessions will expire at the end of the year.

The Genting Group, headed by the Malaysian Chinese billionaire Tan Sri Lim, operates casinos in several different countries across the world. The Macau branch is not active at the moment.

Macau and the six gambling companies that have been active in the Chinese SAR since 2002 have a lot on the line.

Since these companies have invested over $50 billion over the past two decades in Macau, are intimately connected to the economic fortunes of the former Portuguese colony, and provide employment for tens of thousands of people, the loss of a licence by even one of them would likely send shockwaves through the gambling industry.

According to Terry Ng, an analyst at Daiwa in Hong Kong, “far too much disruption” would occur if any of the six operators were replaced. However, other observers of the industry note that the incumbents have left themselves vulnerable to an operator like Genting, which was denied a Macau licence in 2002.

Beijing has been pressuring Macau to diversify away from gambling and attract foreign tourists, and Genting’s excellent non-gaming track record, including owning two of the largest theme parks in southeast Asia, would be a huge appeal.

Analysts believe that the Malaysian group’s various non-gaming assets in China, including a major ski resort that served as the venue for the Beijing 2022 Winter Olympics, will help its prospects.

“They’re in a good position to unseat one of the current leaders, and Genting should have been pushed to join the fray. Given their past, it makes a lot of sense, “According to Ben Lee, CEO of IGamiX, a gaming consultancy based in Macau.

Revenue streams outside of gambling have proven more fruitful for the organisation. While about 10%-20% of revenue at Macau casinos comes from non-gaming sources, roughly 35% of its 2019 total revenue came from its Singapore location.

It is possible that Genting will beat out a casino chain that is owned by Americans as a result of rising tensions between the United States and China.

Lee speculated that this may be the perfect time for Beijing to get rid of at least one American concessionaire.

CRUNCHY COVID

As many of the incumbents are still battling to recover, observers believe the COVID crisis showed Macau’s over-reliance on gambling, highlighting the imperative to diversify.

It is estimated that by 2021, Macau’s gambling income would have dropped to $10.8 billion from $36 billion due to the effects of the Chinese Obstructive Viral Infections Pandemic.

Unlike the current operators, who have mostly catered to Chinese VIPs, Genting “can provide the Macau authorities anything they specifically specified they wanted,” according to Maybank analyst Samuel Yin Shao Yang. Visitors from mainland China account for over 90% of Macau’s business.

Macau has been instructed repeatedly to shift its emphasis away from Chinese VIPs and toward non-gaming industries, but so far, the government has done nothing more than give the notion lip attention. In light of this, “they have to really make a hard deviation to that idea,” Yin added.

Beijing has been cracking down on the junket sector that catered to Chinese VIPs, and this trend has only accelerated over the past year.

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Since gaming generates between eighty and ninety percent of a casino’s revenue, a loss of a licence will force the current operator to give up the casino space to the government for free at the end of this year, rendering the remaining facilities unprofitable.

Some experts have speculated that Genting, which currently holds a 40% share in constructing a Macau hotel, may replace or enter into a joint venture with one of the financially weaker firms, such as SJM. However, the specifics of this plan, such as how Genting will oversee foreign resorts and employees, remain unknown.

Despite the fact that commerce has returned to pre-COVID levels at Genting’s hotels, it is still a struggle for the industry leaders.

In comparison to Genting Malaysia’s positive HK$1.5 billion cash flow from operations in the first half of the year, SJM reported a negative HK$1.8 billion ($229.31 million).

Macau’s recovery from strict coronavirus restrictions is uncertain, but Morningstar analyst Jennifer Song assured investors that pent-up demand is solid and the long-term prognosis is not cause for concern.

Since the government would reallocate facilities and resources to Genting if it got a licence, the 10-year licencing period is also not a barrier, Song added. “We don’t actually need to build everything from the ground.”

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