GGRAsia – Concession extension aids MGM China financing: CEO

Concession extension aids MGM China financing: CEO

Mar 18, 2019 Newsdesk Latest News, Macau, Top of the deck

The sub-concession extension until June 2022 announced on Friday for Macau casino operator MGM China Holdings Ltd by the city’s government, strengthens the firm’s “capacity to finance the business”. That is according to Grant Bowie (pictured in a file photo), chief executive of MGM China, in comments made to GGRAsia.

His remarks followed the Macau authorities saying on Friday that local units respectively of SJM Holdings Ltd – another Macau operator – and of MGM China had been granted extensions to the finish dates of their current gaming rights, moving them from March 2020 to June 2022.

The MGM China unit that holds the Macau gaming rights – locally-registered entity MGM Grand Paradise SA – is in legal terms a sub-concession of the SJM Holdings unit, Sociedade de Jogos de Macau SA.

The government decision puts all six current Macau licensees on the same finish line in terms of Macau casino rights, possibly paving the way for a new public tender process conducted in a single phase.

Mr Bowie told GGRAsia regarding his own firm’s gaming rights extension to 2022: “It’s positive because clearly the term of the concession is the principal asset of the company. So that [the extension], is seen to be positive, and it does give us the opportunity to look at alternate financing strategies moving forward; particularly preparing us for future capital investments…”

MGM China’s United States-listed parent MGM Resorts International said in its 2018 annual report filed to Nasdaq on February 27, that the U.S. group had US$2.4-billion in outstanding debt under MGM China credit facilities as of December 31.

In late December the parent said it had completed arrangements that would allow the group as a whole to borrow more money. MGM Resorts stated it expected to use the money to refinance other debts; fund recently announced transactions; and cover general corporate purposes. The parent is currently actively pursuing plans to gain a gaming licence in Japan.

Financing capacity

MGM China’s Mr Bowie said in his comments to GGRAsia, relating to the Macau situation and the local concession extension: “This decision strengthens our capacity to finance the business. We have a whole series of different scenarios we are now working through.”

He declined to be drawn on specifics, although it is a matter of public record that MGM China has plans to build another tower at MGM Cotai, its second and most recent Macau resort. MGM Cotai had a capital cost of HKD27 billion (US$3.4 billion) upon launch, which was in February last year.

Mr Bowie stated: “The tower is certainly one of the things we built in [to our planning]… but we actually have a lot of other opportunities that we want to create for the business as well.”

He noted: “The issue of capacity and financial structuring are kind of separate conversations.

“The [sub-concession] extension provides other opportunities, otherwise if the concession had terminated in 2020 most of the people that were carrying our debt would want their money back,” he added.

GGRAsia asked Mr Bowie about what might happen from 2022 onward regarding gaming rights in the Macau market. The government said on Friday it was “inclined” to issue a fresh public tender process for Macau gaming rights upon the expiry in 2022 of the current concessions, but didn’t commit itself to a date for that.

“I don’t have any comment on the timing of the tender process. That is totally and exclusively with the government,” he said.

But Mr Bowie noted: “I think the government has a lot of work in terms of preparing the framework, the documentation; and everything else in terms of how that process is going to work.”

Macau gaming law states that the licences of the existing holders can be extended for a maximum of up to five years from the 20-year term, via a decision made by an incumbent Chief Executive of the city. But once a gaming concession contract expires, any new concession would have to be granted via a public tender.

Public tender

We also asked Mr Bowie whether MGM China would aim, post-2022, to be a concessionaire in its own right, rather than a sub-concessionaire of someone else.

He told us: “Clearly it would always be advantageous to be a primary concession holder. But logically it’s all going to come down to how the government decides to move the whole process and structure forward in the future.”

The terms of the agreement announced on Friday – from MGM China’s perspective – were that it will pay MOP20 million (US$2.47 million) to SJM Holdings. The firms will each pay MOP200 million to the government for the extension rights.

MGM China was also required as a condition of the extension to provide a bank guarantee of at least MOP820 million to the Macau government related to “an already-existing commitment of labour liabilities after the expiry of the sub-concession extension contract”.

Mr Bowie gave us some commentary on that, stating it did not mean a fresh capital commitment for MGM China.

“All of those entitlements are already accrued on our balance sheet,” he stated. “What the government is making sure is in place, is that not only do the resources of the company apply; they [the government] are almost ‘double accounting’ for it, because they are requiring a third-party financial institution to provide a guarantee as a backstop that that money will be there.”

Market view

He added, referring to the concession extension: “We are just pleased now this… hurdle has been cleared, and that we [the six Macau operators] are all now aligned, and that the government can hopefully start putting together the structures and processes they are looking for at 2022.”

Japanese brokerage Nomura said in a Friday note: “We view MGM’s [MGM China's] extension agreement as a signal that the Macau government continues its practice of treating concession/sub-concession holders fairly.”

Galaxy Entertainment Group Ltd, another of Macau’s gaming operators, said in a statement sent to GGRAsia that Friday’s concession and sub-concession extension announcement respectively for SJM Holdings and MGM China “paves the way for a smooth retendering process”.

Galaxy Entertainment added, regarding a likely fresh tender at the expiry of the current concessions: “We are confident that the government will make a fair and sensible decision, and will announce related details in due course.”

Wynn Macau Ltd, another of the six Macau operators, stated in an email to GGRAsia on Monday its “support” for the Macau government’s decision “to align the expiry date of all gaming concessions”.