Melco Crown Executive VP and CFO Simon Dewhurst spoke during the Global Gaming Expo (G2E) in Las Vegas recently, explaining Melco Crown’s view of the situation at the end of a conference session entitled „State of the Economy: Gaming CFO Roundtable.“
According to financial website ‚The Motley Fool‘ on Wednesday, Mr Dewhurst gave a response to a question from the audience asking what kind of additional risk premium was required in valuing the stocks of the casino companies operating in Macau, given the „volatile“ regulatory environment that exists in Macau due to the Chinese government.
Mr Dewhurt’s response was “I think that’s a very, very specific question to a specific set of conditions we are facing right now.
“As an operator on the ground in Macau, we spend a huge amount of time conversing with the government in Beijing. We spend a lot of time advising the government in Beijing. They are very open to listening to what their partners think about market conditions. And so the perspective that we have of what it is like and whether there is a risk premium associated with working with Beijing is very, very different from what I hear when I spend time with equity investors in the U.S. and elsewhere around the world.”
He added that “I actually think we have an incredibly stable regulatory environment, and a regulatory environment that has a view that goes out across the next five development plans that exist in China and reach out for 25 years from where we are today. And so that’s the mentality that exists in Beijing.”
As for what the government in Macau is doing, he stated, “to put it in simple terms … they are trying to allow for the broader economy to catch up with the extraordinary growth that has occurred in an industry which happens to generate 70 percent of the tax revenue in Macau, but it only actually employs about 23 percent of the local workforce. And so 77 percent of the workforce hasn’t been benefiting from this extraordinary growth in the gaming industry, and it’s creating some social instability in the market place. And there’s nothing that gets our friends in Beijing hopping up and down more quickly than if they sense that there is an area of social instability in any of the provinces within China.”
Finally he added, “so it’s a short term issue. The broader economy needs to catch up. It will do so over the course of the next 1-2 years, at which point the authorities in Beijing will readjust the lever into Macau. Fundamentally, nothing has changed. Nothing will change, in my view, in terms of the role that Macau plays as the pressure release valve for the gambling instincts of the Chinese populace.”
According to the website, Mr Dewhurst’s response highlighted the issue of “cultural differences” that came into play “when investing in companies that do business outside of the United States.”
It also noted that Melco’s comments were “in stark contrast to their rival Las Vegas Sands”, who has “been vocal in its disapproval of the tightening visa restrictions,” while Melco Crown and Wynn Macau, for that matter, “have taken the long view in supporting the Chinese government with regards to the visa restrictions despite the short-term impact on their stock prices.”