Macau Gaming Law series part 2: Cross-shareholding provisions crossing the line?

Welcome to the second in a series of articles on the Macau gaming law IAG is publishing throughout the month of March and in early April:

Article 17(11) of the new draft Macau gaming law reads, “Neither concessionaires nor shareholders who hold 5% or more of their capital stock may directly or indirectly own any capital stock of other concessionaires operating games of chance in casinos in the Macau Special Administrative Region.”

There appear to be no grandfathering provisions, so any shareholder who currently owns shares in more than one Macau concessionaire – typically referred to as cross-shareholding – will presumably be required to divest their interests in all but one Macau concessionaire, if their shareholding in at least one of those concessionaires is 5% or more, and the shareholder wishes to retain a shareholding above that 5% threshold.

Two cross-shareholding situations which may be affected by this provision immediately come to mind.

First, Pansy Ho, Co-Chairperson and Managing Director of MGM China, holds substantial equity in both MGM China and SJM Resorts. Indeed, her sister Daisy Ho is no less than Chairman of SJM.

Second, Galaxy Entertainment Group, whose Vice Chairman and CEO Francis Lui was listed as the most powerful person in the Asian gaming industry in the 2021 Asian Gaming Power 50 list, owns 4.9% of Las Vegas-based Wynn Resorts, which in turn owns approximately 72% of Wynn Macau.

Will Pansy Ho have to divest her interest in one of MGM China or SJM? Or could a merger even be on the cards? What about Galaxy and Wynn? The same questions apply.

Then there is the issue of international cross-shareholding. Article 22C(1) of the proposed new Macau law reads, “If a concessionaire intends to operate games of chance in casinos or other types of games in other jurisdictions, it shall first obtain an authorization from the Chief Executive …”

Other provisions in Article 22C create certain restrictions for capital transfers under particular international cross-shareholding circumstances and require concessionaires to inform the Gaming Inspection and Coordination Bureau (DICJ) should any 5% or more shareholders operate casinos in other jurisdictions.

The obvious example here is Las Vegas Sands, which is both the parent company of Sands China – a Macau concessionaire – and the operator of Singapore integrated resort Marina Bay Sands.

Presumably such provisions limiting domestic and international cross-shareholding are designed to promote competition between casino operators – whether within Macau or internationally.

But is the Macau government going too far in restricting cross-shareholding?

Firstly, 5% seems like a very low threshold. Owning a mere 5% of a company hardly provides control over the management of that company. In other industries in other jurisdictions, it is not unusual to see cross-shareholding provisions apply at a 10% threshold. And to be honest, even owning 10% of a company hardly offers unfettered control – just ask Henry Cheng.

Secondly, limiting 5% or more shareholders to only owning shares in one Macau concessionaire seems a bit draconian. The way the law currently reads, such a shareholder is prohibited from owning even one single share in another concessionaire. Why not limit the ownership in a second concessionaire to, say, 5%? Or even 10%?

Thirdly, is there a need to limit international cross-shareholdings? If the policy intention here is to promote international competition, that could work against the interests of Macau just as much – or even more – than it works to Macau’s advantage. Perhaps the Macau government wants Macau concessionaires and their major shareholders to focus just on their Macau interests and not spread their efforts over multiple jurisdictions. But Macau concessionaires having gaming assets in other jurisdictions could be to Macau’s benefit. Player lists can be shared, economies of scale created, and best practices imported.

And finally, there is a very practical argument against excessive cross-shareholding restrictions – and that is the very limited number of top-tier IR operators that exist in the world. Any brutally honest assessment of the global IR industry must conclude that the number of such top-level operators can be counted on two hands, and arguably perhaps just one hand! With so few top-notch IR companies around the world and many jurisdictions opening or expanding their IR industries, a certain amount of cross-shareholding is inevitable – arguably even desirable.

The third article in this series will be published next week.

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