Macau satellite casino closures could cut hotel valuations by 60%: expert
Expert warns the closure of satellite casinos could lead to severe property devaluation and financial instability. Predictions are that some hotel properties could lose more than 60 percent of their value, according to Franco Liu, a Macau-based property valuation expert.
The properties tied to these satellite casinos have seen inflated valuations due to the presence of gaming operations on-site. These valuations have made it possible for hotel owners to secure larger loans. However, properties will likely see a drastic reduction in value if these casinos shut down. As property values decline, the loan-to-value ratios for many properties will skyrocket, potentially reaching as high as 150 percent. This has raised concerns about potential defaults and financial system strain.
“If there is a lack of a conclusive solution to satellite casinos, it will make property valuation challenging, as factors such as the presence of a casino and variations in management fees play a significant role in determining overall property value,” Liu told local media.
Associated banks to be affected
Hotels with satellite casinos have a history of securing larger loans due to their higher valuations. However, with the looming deadline and closures, Liu has warned that devaluations would render many of these loans unsustainable. This would also greatly impact banks with significant exposure to the sector.
These casinos have been a significant contributor to Macau’s economy, generating over MOP11 billion in gaming revenue in the past year. This translated to contributing around MOP4 billion in taxes to the region’s government. Additionally, these casinos have directly supported 13,500 jobs.
What is the new law?
The new gaming law, which took effect in 2022, introduced significant changes to the operation of satellite casinos. Under the law, these casinos will no longer be allowed to share gaming revenue with concessionaires. They will be receiving a management fee instead. The law provided a three-year transitional period to satellite casinos to adapt to the new management company model. This grace period expires this year.
At the start of 2023, Macau had 11 satellite casinos in operation, down from 18 before the enforcement of the revised gaming law in 2022. Nine of the total satellite casinos operate under the concession of SJM Holdings. This marked a 40 percent decline in their numbers, attributed to operators exiting the market due to increased regulatory demands and the requirement for concessionaire ownership.
Under the new law, satellite operators can rent out the property and establish casino operations much and establish casino operations much like a tenant would any other business. However, the casino will still run under the concessionaire’s gaming concession.
Government’s pledge to closely monitor developments
This week, as the three-year transition period for Macau’s satellite casinos nears its end in 2025, the government has pledged to closely monitor developments to protect workers and maintain industry stability. The Gaming Inspection and Coordination Bureau (DICJ) said it will “continuously assess” the city’s gaming industry and stay in “close communication” with casino operators and other government departments. This pledge came in response to a recent inquiry about the future of satellite casinos from Macau lawmaker Lei Leong Wong.
