THE Chief Executive’s (CE) reticence in his recent Policy Address regarding the upcoming expiration of the gaming licenses has added uncertainty to the already troubled sector, as it clearly illustrated “how rising political risk across China is directly affecting international investors.”

CE Ho Iat Seng previously remarked that a public tender process would take place after the expiry of current concessions – however, he did not provide further detail on timing, despite earlier commitments to complete a tender process by the fourth quarter of this year.

According to a report by political and corporate risk consultancy Steve Vickers and Associates (SVA), as no concrete plans have been announced the “tendering process remains opaque, leaving the casino sector in a state of limbo.”

“Macau is perhaps more acutely impacted by political risk than other PRC cities,” the report stated – a significant concern, as Ho has said little about the government’s plans for the sector, which generates 80% of Macau’s gross domestic product.

The SAR government announced back in September that they would change casino regulations to tighten restrictions on operators, including appointing government representatives to “supervise” gaming operators.

The announcement caused a massive record loss of USD18 billion in combined market value.

The report noted that as part of tightened regulatory arrangements, major foreign companies, such as Wynn Macau, MGM China, and Sands China, might have to increase the percentage of share capital held by Macau residents (currently at 10%), forcing casinos to become more “Chinese.”

“The Macau government seems, under direction from Beijing, determined to diversify away from a total reliance on casino gaming; and the looming end of the concessions provides great leverage to force through the necessary changes,” said SVA.

Macau’s gross gaming revenue (GGR) has been on the receiving end of a ‘double whammy’ as border restrictions haven gotten stricter each time new cases arose in the region – a similar state of affairs to late September to October, when potential revenue was wiped away during Macau’s traditionally busiest months.

As of October, total GGR had reached USD8.99 billion, up by a significant 57% compared with the same period last year. However, when compared with Macau’s former gaming revenue peak in 2013, the figure is well below the USD40 billion recorded that year.

“Macau’s go-go years do seem over, then. After all, the casino industry’s rapid expansion always depended on a degree of acquiescence in capital outflows and widespread, if concealed organised crime involvement with the junkets,” SVA stated.

“Now, the central Chinese and the local Macau governments have retracted that acquiescence, and display an appetite for tighter controls. Investors in the casino businesses should manage expectations accordingly,” he added.

According to the expert, Macau’s situation also provides a “neat illustration of how rising political risks will affect foreign businesses across China.”

In the report, SVA suggested that investors reappraise the impact of political risks on investments, adding that it should also monitor plans to implement the new measures in China, taking account of how a deterioration in relations between the US, its allies and China could affect the investment.