Macau Casino Dividend Proposal ‘Has No Parallel’ in Established Policy, Says Law Firm

Posted on: October 7, 2021, 09:36h. 

Last updated on: October 8, 2021, 01:56h.

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

A proposal by Macau authorities that, if implemented, would require casino operators to obtain government approval prior to distributing dividends to investors has no established precedent in the special administrative region’s (SAR) legal framework, according to a local law firm.

Macau dividends
A visitor photographs Macau’s Parisian Hotel, seen above. In Macau, authorities want to regulate how casino companies pay dividends. A law firm says there’s no precedent for that. (Image: Reuters)

Last month, shares of concessionaires in the world’s largest casino center tumbled after authorities there announced the start of a new consultation period that includes an array of new policy pitches. Global investors are interpreting that as leading to more oversight and regulation. Among those considerations is a rule whereby government approval would be required to pay dividends to shareholders.

A new report penned by attorneys Rui Pinto Proença and Rui Filipe Olivera of MdME Lawyers notes existing Macau Civil Code doesn’t accommodate a government-controlled dividend policy.

The pursuit of profit as the ultimate goal of a private company is embedded in its legal definition prescribed by the Macau Civil Code, and no shareholder can be deprived of its right to share in a company’s profits,” said the lawyers. “Under the current legal framework, payment of dividends is subject only to shareholders’ approval.”

MdME says the only restriction on shareholders’ discretion pertains to a minimum percentage of profits that must be distributed in the form of dividends, not a cap on how the size of those payouts.

Dividends not Necessarily at Odds with Macau Goals

One of the primary reasons Macau stocks slumped last month, including a day in which about $20 billion in market value evaporated, is the specter of the SAR government taking larger equity stakes in the companies.

In theory, that could be positive regarding dividends, because the government would benefit from steady payouts alongside other shareholders. However, the idea of increased government stakes in gaming companies roiled markets, sparking concerns Macau casino operators could eventually look like state-owned enterprises (SOEs) — a corporate structure found predominantly in developing economies. Governments are the largest investors in SOEs, and their interests don’t always align with those of other shareholders.

MdME says there are three key policy areas that fall under the dividend proposal. Those are operators’ ongoing investments in Macau’s economic diversification, maximization of benefits from the gaming industry to the local community, and ensuring concessionaires are financially healthy.

“It is fair to say that any or all of the above objectives are legitimate. However, the effectiveness of the proposed measure to achieve them is debatable,” said Olivera and Proneca.

Proposal May Harm Macau Dividends

As reflected by price action in Macau gaming equities last month, investors are fretting the SAR’s efforts to regulate dividends could be more damaging than intended.

“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,” note Olivera and Proneca.

Three of the six Macau license holders are US-based companies. Of that group, only MGM Resorts International (NYSE:MGM) pays a dividend to US investors, and it’s a token one at that, just a penny per share, per year.