Las Vegas Sands, Wynn, MGM Prized Macau Licenses Likely to be Renewed, Says Ratings Agency

Posted on: August 10, 2019, 01:39h. 

Last updated on: August 10, 2019, 03:16h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Las Vegas Sands and rival US companies operating casinos in Macau will likely have their gaming licenses there approved again in 2022, the time when local authorities are expected to deal with the matter, according to Moody’s Investors Service.

Venetian Macau, operated by LVS. That company and rivals should get their licenses there renewed. (Image: Expedia)

Renewal of those permits is vital for companies, such as Sands and Wynn Resorts, that depend on the Chinese territory for significant percentages of revenue and earnings before interest, taxes, depreciation and amortization (EBITDA). LVS owns five Macau casinos, while Wynn owns two. MGM Resorts’ China business controls the MGM Cotai and MGM Macau.

We believe there will be changes to existing gaming concession agreements, but also think it’s unlikely renewals will be rejected,” said Moody’s in a recent note.

That’s critical news for US companies doing business on the peninsula. In the second quarter, Macau accounted for 61 percent of LVS’s EBITDA. The company’s results there for the April through June period disappointed investors, sending the stock lower by about 17 percent since its earnings report.

Conversely, MGM and Wynn Resorts reported better-than-expected second-quarter Macau numbers. On earnings calls, executives have been mostly mum on the Macau renewal process.

Other Factors Favor US Companies

While the gaming licenses expire in 2022, the building and land permits the aforementioned companies have with Macau come up at later dates, potentially making it unattractive for authorities there to replace existing operators, according to Moody’s.

“A newcomer could not simply take over the gaming operations without cooperation from, and possible significant payments to, the land concessionaire,” said the ratings agency.

Additionally, Las Vegas Sands, Wynn, and MGM China have been major investors in Macau since the first gaming properties appeared there in 2006. From 2006 through the end of last year, LVS invested $13.6 billion there. Over that period, Wynn devoted $8.7 billion to Macau, while MGM put down $3.5 billion there, notes Moody’s.

More investments are coming. Last month, Wynn said it is planning the $2 billion Crystal Pavilion, which will add 1,300 guestrooms adjacent to the Wynn Palace. LVS has plans for Macau expansion of its own, recently pledging to spend $2.2 billion on projects there.

The plans put forth by US gaming companies in Macau are aimed at bolstering the region’s convention and non-gaming tourist industries, something policymakers there are eager to see happen as they work to diversify the local economy and reduce dependence on gaming receipts.

Moody’s believes those efforts could be meaningful with license renewals looming.

Tax Talk

The ratings agency doesn’t expect gaming companies currently operating in Macau to face higher taxes after their licenses are reaffirmed. Operators there are already saddled with a 38 percent effective tax, which is considered high when measured against comparable markets.

With Japan looking to burst onto the casino gaming scene and South Korea, among other Asia-Pacific countries, still a formidable player, Macau may not want to press its luck with higher taxes as regional competition increases.