The Macau Special Administrative Region (“Macau”) financial system has been retained intact throughout the recent economic cycles and the general regulatory environment, in relation to financing, has been stable since the Macau Financial System Act was enacted in 1993.
In recent years, the dominant forces for the growth and development the Macau loan market, residential mortgage loans (“RMLs”) and commercial real estate loans (“CRELs”), have shown signs of contraction. In accordance with Report on Mortgage Loans Statistics, October 2018 – March 2019, published by the Monetary Authority of Macao, the new CRELs approved witnessed declines in the reporting period while new RMLs approved fell in the first quarter of 2019 after growing in the last quarter of 2018.
The financial market of Macau has welcomed the first listing of bonds issued by the Ministry of Finance of the People’s Republic of China.
The high-yield market in Macau remains relatively limited and the issuance of high-yield bonds is primarily confined to certain types of corporate entities, especially in the financial industries. Traditional financing terms and structures, therefore, remain relatively unaffected.
Credit activities are highly regulated in Macau and, in general terms, credit can only be provided by licensed banks and finance companies. Traditional banks aside, until now, no finance companies have been established in Macau. There has, therefore, been no significant growth in alternative credit providers.
Due to the economic surge in Macau over the past decade, traditional banks are actively promoting private banking and wealth management to serve high net worth individuals (HNWIs) which, in some cases, involves tailored lending and mortgage strategies.
More financial institutions have been extending their cross-jurisdictional abilities to companies and individuals engaged in businesses or transactions across the Pearl River Delta Metropolitan Region, including neighbouring Hengqin Island, set to be a financial centre for the triangle Macau, Hong Kong and Guangdong Province, particularly in the Special Economic Region of Zhuhai.
We expect that the number of Mainland companies issuing bonds in Macau to increase over time.
The Macau Monetary Authority has made known to the public that it is in the process of revising the main regulation for the financial sector, Macau Financial System Act (Decree-Law no. 32/93/M, 5 July 1993).
That said, currently there is no major legal, tax or regulatory changes have been put forth for discussion in the Legislative Assembly of Macau.
Only licensed banks and those financial institutions which have been properly constituted and authorised under the terms of the Macau Financial System Act of 1993 (Decree-Law no 32/93/M, 5 July) or special legislation, ie, the Finance Companies Act (Decree-Law no 15/83/M, 26 February), are allowed to provide, on a habitual basis and with a view to profit, lending, guarantees and other commitments, financial leasing and factoring in Macau.
Authorisation is granted by the Chief Executive of Macau on advice from the AMCM and, in general terms, entities willing to incorporate a credit institution in Macau should submit their application through the AMCM, accompanied by relevant information, inter alia:
The same information should be provided in relation to the corporations which are direct or indirect holders of 5% or more of the credit institution to be incorporated. The AMCM may request any other information it deems necessary to allow a full analysis of the application.
The decision on the application for authorisation shall, inter alia, take into account the suitability of the qualifying shareholders, including the ability of the institution to guarantee the safety of the funds deposited with it; the adequacy of the technical and financial resources required for the type and volume of transactions which the applicant proposes to conduct; and the adequacy of the objectives of the applicants with regard to the economic and financial policies pursued by the official bodies in Macau.
Any local or foreign entity in Macau that provides lending on a habitual basis and with a view to profit must abide by the regulations described in 2.1 Authorisation to Provide Financing to a Company. The applicability of the requirements described does not make exemptions with regard to the origin of the entities.
Nonetheless, it is quite common for foreign institutions not registered in Macau to grant loans, including syndicated loans. This form of lending is not considered habitual, so it does not contravene the rules established by the Macau Financial System Act.
There are no prohibitions imposed on granting security or guarantees to foreign lenders. However, in accordance with the Macau Commercial Code, companies cannot provide personal or real guarantees for the obligations of other persons, except if there is a personal interest in the company, declared and reasoned in writing by the administration body.
Macau is a free port and there are no general exchange controls or restrictions on, and regarding, foreign currency exchange.
The use of the proceeds from loans or debt securities is determined by the agreements entered into by and between the lender and borrower and, other than what has been agreed between the parties involved in the financing agreements, no restrictions exist on the borrower’s use of proceeds from loans or debt securities.
The concept of trust is not recognised in Macau, but the concept of an agent is. The agent is commonly referred to as the “mandatário” and, in the context of loans, the agent mostly appears in a syndicated loan arrangement as an administrative figure.
Most commonly, when it is necessary to implement the foreign concept of a trust, a special irrevocable power-of-attorney arrangement may be considered.
The credits assignment and contractual position assignment are the main loan transfer mechanisms that exist under Macau law.
By credits assignment, the lender can assign to any third party, partly or wholly, the credits in question, without the consent of the borrower, unless otherwise stated in the law or by agreement, or unless the credit is by its very nature linked to the personal quality of the lender. In the absence of any contrary agreement, the credits assignment also transfers the associated securities to the assignee, as long as the securities can be transferred by the assignor.
By contractual position assignment, a party to a particular loan arrangement (in this case, the lender) can transfer its contractual position in its entirety to any third party only with the consent of the other party (in this case, the borrower).
Debt buy-back is not forbidden by Macau law. However, when the market circumstances and contractual terms are favourable, a borrower would more commonly consider repayment of the loan in advance.
There are no particular rules under Macau law regarding “certain funds” with respect to public acquisition finance transactions.
In accordance with Macau Complementary Tax Law, there are no provisions for withholding taxes from payments made by local companies to foreign companies.
Banking operations are subject to stamp duty. The following are subject to such duty at a rate of 1% over the global amount of the profits determined:
Nonetheless, there are statutory exemptions, including when the loan is granted by credit institutions authorised to operate in Macau.
The general legal interest rate of Macau is fixed at 9.75% annually and any interest rates that are three times or more over the legal interest rate, ie, 29.25% or more annually, are considered as usury.
Without prejudice to a contrary written stipulation regarding methods for the determination and variation of interest rates, the commercial interest rates are the same as the general legal interest rates, but 2% shall be added to the rate in the case of delayed repayment by a borrower.
The assets typically available as collateral to lenders are real estate properties (eg, urban and rustic properties), movable property (eg, cars, ships, aircraft, company shares and quotas, IPs) and receivables (eg, deposits, income, proceeds from insurance claims, rights to payment).
The applicable formalities and perfection requirements generally conform to those that are applied to the constitution or acquisition of the assets, ranging from a simple agreement between the parties, to a public deed with the intervention of a notary public, possibly with the additional requirement of completing the registration of the security with the competent public authorities (eg, the Real Estate Assets Registry, the Commercial and Moveable Assets Registry, etc).
The essential consequence of not completing the above requirements renders the respective security invalid and/or unenforceable against any third party.
The timing and costs involved in arranging any of the above security measures vary and these are dependent on the complexity of the respective formalities and perfection requirements.
The Macau Commercial Code permits that a floating charge be granted over all present and future assets of a company, provided that certain requisites are fulfilled.
There are no general or associated limitations or restrictions on downstream, upstream and cross-stream guarantees. However, in accordance with the Macau Commercial Code, companies cannot provide personal or real guarantees for the obligations of other persons, except if there is a personal interest in the company, declared and reasoned in writing by the administration body.
The general rule is that companies cannot provide personal or real guarantees for the obligations of other persons, except if there is a personal interest in the company, declared and reasoned in writing by the administration body. Therefore, unless the target being acquired satisfies the above requirements, any guarantees or security or financial assistance for the acquisition of its own shares would be null and void.
Besides the general rule mentioned in 5.4 Restrictions on Target, restrictions are imposed on credit institutions (eg, banks) to limit their exposure to the holders of qualifying holdings, ie, any person, individual or corporate which has, directly or indirectly, a qualifying holding in them, or to companies in which this person has direct or indirect control. Additionally, the aggregate exposure of all holders of qualifying holdings and companies may not exceed, at any time, 40% of their own funds.
Such operations require approval from all the members of the credit institution’s board of directors and a favourable opinion from its supervisory board. The AMCM shall be notified of the respective terms within ten days, counted from the date of the respective approval.
Specific limits are imposed on exposures to the security of its own shares; to the members of its board of directors and supervisory board, their spouses (as long as they are not judicially separated or married under the regime of separate property), children, parents, stepchildren, stepparents, sons-in-law, daughters-in-law, parents-in-law, or companies under their control or to which board of directors or supervisory board they belong; and to each employee, etc.
The typical forms of security are released through the same requirements and formalities applicable to the perfection of the constitution of securities, which may require a deed of discharge and release, as well as cancellation of the respective registration with the competent public authorities, depending on the type of security and assets granted in security.
The general rule governing the priority of competing security interests is the date of perfection of security (eg, registration of the security with the competent public authorities, when registration is required). Contractual prioritisations/subordination made within the legal limits are allowed in Macau and are enforceable between parties. However, for contractual subordination provisions to fully survive the insolvency of a borrower, there must be sufficient funds to satisfy more senior creditors before the parties to the contractual subordination provisions. Otherwise, the priority of the creditors will be corrected in accordance with the legal priority.
Despite the above, the concept of privileged credits is foreseen by the Macau Civil Code, which defines them as “the faculty that the law, considering the credit involved, grants to certain creditors, independently from registration, of being paid in detriment of other creditors”.
Unlike secured credits (eg, through mortgage, pledge) privileged credits do not require to be registered and they are the highest ranked of the credits, having first priority over other obligations of the debtor.
According to the Macau Civil Code, privileged credits are of two different types: firstly, general movable privileged credits, which comprehend the entire value of the assets when the assets are seized or frozen, and secondly, special privileged credits, which comprehend the amount of determined assets.
The ranking of privileged movable credits is as follows:
As far as special privileged credits are concerned, under the Macau Civil Code, it is stated that:
Whenever there is a liquidation of assets, the ranking of privileged assets is as follows:
All the aforesaid privileged credits have priority over the secured credits.
A secured lender can enforce its collateral in accordance with the terms and conditions set out in the loan agreement, with collateral entered by and between a secured lender and borrower. Typically, securities and guarantees can be enforced judicially or, when certain circumstances are met, out of court.
Once there is a default, the secured lender may enforce its security against the borrower. With certain securities, such as mortgage, promissory notes and other types of executive titles, the proceedings can be initiated without going through declarative proceedings and the secured lender can submit an application to the court already listing the assets of the borrower and requesting that such assets be seized.
The choice of a foreign law as the governing law of the contract and the submission to a foreign jurisdiction are, in general, upheld under Macau law.
Particular attention has to be paid to the relevancy of the choice of a foreign law and the exclusivity of the Macau court’s jurisdiction (eg, location of the collateral).
Waiver of immunity for civil matters is only valid if made in accordance with local legislation and international, regional and bilateral agreements, particularly with respect to the nature of the underlying collateral, person and entity.
The courts of Macau recognise a judgment from foreign courts through a special proceeding called “Revision and Confirmation” of Foreign Judgments, unless regulated otherwise in an international treaty applicable in the Macau jurisdiction, an agreement under judiciary cooperation, or special law (meaning any law, decree or government decision that falls outside that general rule/provision).
The following conditions also need to be fulfilled:
The decision of the arbitral tribunal is enforceable in the Macau courts of general jurisdiction in the same terms as a decision rendered by the court. In addition to the regime for internal arbitration, a specific regime for commercial external arbitration is provided for in Decree-Law 55/98/M (November 23, 1998). This regime is similar to the United Nations Commission on International Trade Law (UNCITRAL).
With regards to recognition in Macau SAR of arbitral decisions made abroad, the general rule established for court decisions is also applicable to arbitral awards. Given this, for a foreign arbitral decision to be executed in Macau, the decision shall first be revised and confirmed by a Macau court, except if there is an agreement between both jurisdictions exempting this.
There are no matters which might significantly impact a foreign lender’s ability to enforce its rights under a loan or security agreement in Macau, except that all the documents to be submitted to the Macau courts are required to be translated into either of the two official languages, Portuguese or Chinese.
Under Macau law, there is no alternative to insolvency proceedings. However, under such process, it is possible to have an agreement between the creditors or for the bankrupt party to request that the court reduce the credits, which, if accepted by the court, will be proposed to the creditors who may vote on such a request.
The declaration of insolvency determines the closure of the company’s current accounts, the immediate maturity of all debts, the cessation of the accrual of interest or other charges on the obligations of the company, and the termination of any actualisation of the obligations to which the company is subject.
The declaration of insolvency also precludes the initiation or continuation of any proceedings against the company.
Under the Macau Civil Procedure Code, payment is immediately made to the creditors with real estate collateral, upon having liquidated the assets, and if such creditors are not paid in full, they are then included among the common creditors.
The rules for the order of the credits are distributed throughout the Macau Civil Code, and a systematic approach can be used to interpret the rules and determine the order for income assignment, pledge, mortgage, privileged credit, and lien, as well as the relationship between the creditor and the company.
The jurisdiction does not provide for the concept of equitable subordination.
Further to 7.2 Impact of Insolvency Processes, the borrower, security provider or guarantor shall note that, as a general rule, any transactions executed by the company in question after the judicial ruling of insolvency are not enforceable against the insolvent estate.
Securities granted in bad faith, with the purpose of deliberately avoiding payment to creditors, can also be annulled or declared null and void. For example, any real estate securities granted one year before the date of the judicial ruling of insolvency, where the granting of such only occurred after the debts had been incurred, and any real estate securities granted 90 days before the judicial ruling of insolvency, where the granting of such occurred simultaneously with the incurrence of debts, can be declared null and void by the court.
At present, there is no specific legislation on project finance in Macau. Therefore, the general legislation regarding financing and lending is applicable to each project being financed.
Integrated resort complexes and infrastructures are major targets for project finance in Macau, and the future development trends of project finance depend on the emergence of similar projects.
Public-private partnership has been embraced by the government in numerous areas, such as water, electricity, airport operation, transport, education and telecommunication.
The general legislation applicable to a public-private partnership is the Macau Administrative Procedure Code, and the specific legislation applicable is Law no 3/90/M, establishing the general principles to be observed in the concessions of public works and public services.
As mentioned in 8.1 Introduction to Project Finance, the general legislation regarding financing and lending described in 2.1 Authorisation to Provide Financing to a Company, is applicable to each project being financed.
The government body responsible for the energy sectors is primarily the Land, Public Works and Transport Bureau, with the Office for the Development of the Energy Sector having competencies for the implementation of the policies, as well as regulatory and supervisory powers.
Macau does not have a uniform energy policy, therefore the laws and regulations with respect to the oil and gas, power and mining sectors are disbursed in piecemeal legislation.
As mentioned in 8.1 Introduction to Project Finance, the general legislation regarding financing and lending described in 2.1 Authorisation to Provide Financing to a Company, is applicable to each project being financed. Further, the form of the project company can be chosen within the legal typical forms and there are no general restrictions on foreign investment.
Project finance transactions would typically be managed by forming a special purpose vehicle (SPV), involving a range of financing tools such as bank financing, export credit agency financing and project bonds.
In accordance with the Basic Law of Macau, the land and natural resources within the region are regarded as state property, except for private land recognised as such according to the laws in force before the establishment of the Macau SAR. The government is responsible for the management, use and development of state property and for leasing or granting it to individuals or legal persons for use or development. The revenues derived therefrom shall be exclusively at the disposal of the government of the region.
The environmental, health and safety laws applicable to projects are also applicable to general circumstances, and are as follows:
Apart from in particular instances, Islamic finance is an unchartered area in the Macau financial industry.
No specific regulatory and tax framework for the provision of Islamic finance has been proposed by the government or enacted by the legislative assembly.
Before being distributed in Macau, all financial products have to be authorised by the Macau Monetary Authority. Thusfar, no Shari'a-compliant products have been used in Macau.
Please see 9.3 Main Shari'a-compliant Products.
There have been no notable cases on jurisdictional issues, the applicability of Shari'a or the conflict between Shari'a and local law relevant to the banking and finance sector.
Increase in the Number of Authorised Financial Institutions
When comparing the 2018 and 2019 list of authorized institutions published in the Boletim Official (Official Gazette) of the Macau Special Administrative Region of the People’s Republic of People (hereinafter “MSAR”), the number of credit institutions incorporated in MSAR has been increased by two new entrants, ie, Ant Bank (Macao) Limited and the Macao Development Bank Limited, both being banking institutions; the number of other financial institutions incorporated in MSAR has been increased by one new entrant, Chongwa (Macao) Financial Asset Exchange Co. Ltd., which is authorized to provide services relating to financial asset transactions. Thus, the number of banking institutions incorporated in the MSAR has increased from nine to eleven (an increase of 22.22%) and the number of other financial institutions from two to three (an increase of 50%).
Diversification of the Financial Services and Products Available in Domestic Market
Innovative financial services and products are expected to be introduced to the conventional financial markets of MSAR from these newly authorized financial institutions. Chongwa (Macao) Financial Asset Exchange Co. Ltd. has, within six months from of its establishment, welcomed it first listing of bonds issued by the Bank of China, Macau Branch, and a milestone was set in the second half of 2019 by welcoming the listing of bonds issued by the Ministry of Finance of the People’s Republic of China. Ant Bank (Macao) Limited, after changing its name from Xinghui Bank Limited, has announced the launch of its virtual banking services, allowing local Macau residents and companies to open deposit accounts with the banking institution in August 2019. In recent times, the field of mobile payments has also been crowded by the entrance of various actors, either by arrangement with existent services providers or by innovation of its own, such as: the Bank of China, Macau Branch; Tai Fung Bank Limited; China Guangfa Bank Co. Ltd.; Macau Pass SA; Uepay Macao Limited etc.
Trends Towards an Expanding Financial Sector
The development of the financial actors in Macau has been characterised as steadily expansionary. From 2016 and onward, Banco Nacional Ultramarino, S.A. (BNU), Luso International Banking Limited, and Tai Fung Bank Limited have been authorised to establish a branch office in Hengqin, Guangzhou and Shanghai and, more recently, in September 2019, Luso International Banking Limited has also been authorised to establish a branch office in Hangzhou. During July 2019, the Portugal-based Haitong Bank, S.A. – formerly Banco Espírito Santo Investimento (BESI) – announced the receipt of authorisation from Bank of Portugal to establish a branch office in Macau. If Haitong Bank S.A. goes through with its plan, that would mark the arrival of a Chinese-owned Portugal-licensed banking institution to Macau.
With the role of the MSAR defined in the national policies of the Greater Bay Area and One Belt, One Road, and the encouragement of the Central and MSAR governments, the financial sector of MSAR is expected to develop further, especially in the areas of financial leasing, wealth management and bond-related services. The Macau Monetary Authority informed the press in April 2019 that a study on the feasibility of establishing a RMB-denominated stock market in the MSAR is underway.
Regulator’s Efforts in Keeping up to Pace with the Progression of New Development
The Macau Monetary Authority is constantly making progress in providing legal amenities for the financial sectors. On 21 March 2019, the Legislative Assembly approved the Tax Advantage Scheme for the Financial Leasing Law and the Financial Leasing Companies Act. Furthermore, alongside the commencement of business of the Chongwa (Macao) Financial Asset Exchange Co. Ltd. (in providing bond-related services), the Macau Monetary Authority initiated a study and consultation for guidelines to complement the financial-legal system of the MSAR.
As a result of the prompt action of the regulator, the newly minted Simplified Procedures for the Sale of PRC Sovereign Bonds (Circular no. 007/B/2019-DSB/AMCM), Guideline on Management of Corporate Bond Issuance and Trading (Circular no. 009/B/2019-DSB/AMCM), and Guideline on Underwriting and Custody of Corporate Bond (Circular no. 009/B/2019-DSB/AMCM) were circulated and came into effect in June 2019.
It is believed that the Macau Monetary Authority is in the process of revising the main regulation for the financial sector, the Macau Financial System Act (Decree-Law no. 32/93/M, 5 July 1993).
Overall, the years 2018-2019 have been an exciting time for the financial sector of the MSAR.