The Macau Special Administrative Region’s economy, with the tourism and entertainment sector as its mainstay, has been severely impacted by the coronavirus (COVID-19) pandemic.
The dominant forces for the growth and development of the Macau loan market – residential mortgage loans (RMLs) and commercial real estate loans (CRELs) – have continued to be slow in their recovery. In accordance with the Macao Economic Bulletin – jointly published by the Macao Economic Bureau, the Monetary Authority of Macau (AMCM) and the Statistics and Census Service – new RMLs approved in Q1 of 2021 stood at MOP7,928.6 million, in comparison to MOP7,549.2 million in Q1 of 2020 and MOP9,604.5 million in Q1 of 2019. Also, new CRELs approved in the same period in 2021 and 2020 witnessed a decrease of more than 39.7%.
Considering the current economic situation, the financial sector has been viewed as a fitting candidate to assist Macau in developing a more diversified economy. The government has made it clear that a series of actions will be taken to nurture a more prominent bond market in Macau. It is worth noting that the number of bond issues has increased and the first dual listing on both Chongwa (Macao) Financial Asset Exchange Co., Limited, the Macau-licensed bond-related exchange, and the Luxembourg Stock Exchange of a medium-term note programme has taken place recently.
While the economy has taken a hit, financial services and their regulatory framework are expected to embrace further developments in the near future, particularly in bonds, trusts and investment funds services.
See 1.1 Impact of Regulatory Environment and Economic Cycles.
The issuance and listing of bonds in Macau is primarily confined to certain types of corporate entities, particularly the ones originating from Mainland China.
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, there is only one finance company that has 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 in neighbouring Hengqin Island, Hong Kong and Guangdong Province.
The authors expect that the number of Mainland companies issuing bonds in Macau will increase over time. Banks in Macau are increasingly more experienced with bond-related services, particularly underwriting and the custody of corporate bonds, as well as the management of corporate bonds issuance and trading. Recently, the Department of Finance of Guangdong Province has announced that it will issue renminbi-denominated offshore bonds in Macau.
The government has made it known to the public that it continues to facilitate the legislative process regarding the Trust Law and amendments to the Macau Financial System Act of 1993 (Decree-Law No 32/93/M, 5 July 1993). According to the recent release of the public consultation document on the second five-year plan on economic and social development from 2021 to 2025, the government intends to speed up the drafting and legislation of the laws and regulations concerning securities markets.
The Guideline on Management of Corporate Bond Issuance and Trading (Circular No 008/B/2019-DSB/AMCM) and the Guideline on Underwriting and Custody of Corporate Bonds (Circular No 009/B/2019-DSB/AMCM) remain the principle guiding documents of the Macau bond market issued by the AMCM. Early in 2021, there was an update on the first guideline, requiring managers and financial intermediaries to provide sufficient grounds for a bond issue in certain circumstances.
Furthermore, with the emergence of the Guangdong–Macao Intensive Cooperation Zone, it is expected that more incentivising measures will soon be put forth to facilitate the development of the four main sectors:
Environmental, social and corporate governance has been a topic for discussion in recent times among public authorities and NGOs. It is expected that policy development on this topic and sustainability lending will continue to be discussed in the coming years.
Only licensed banks and those financial institutions that have been properly constituted and authorised under the terms of the Macau Financial System Act of 1993 or special legislation – ie, the Finance Companies Act (Decree-Law No 15/83/M, February 26th) – 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 corporations that 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:
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 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 a 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.
As mentioned in 1.6 Legal, Tax, Regulatory or Other Developments, the government intends to finalise the draft Trust Law.
Credit assignment and contractual position assignment are the main loan transfer mechanisms that exist under Macau law.
By credit assignment, the lender can assign to any third party, partly or wholly, the credit 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, credit 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 law in Macau. 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 the 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: commissions relating to credit operations, banking service commissions and other banking profits, resulting from safe value activities, intermediation of payments and administration of capital. 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 property (eg, urban and rustic properties), movable property (eg, cars, ships, aircraft, company shares and quotas, IP) 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 or the Commercial and Movable Assets Registry).
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 an own 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 an own 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, 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 that 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, and the AMCM shall also be notified of the respective terms within ten days, counted from the date of the respective approval.
Specific limits are also 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, step-parents, sons-in-law, daughters-in-law, parents-in-law, or companies under their control or the board of directors or supervisory board to which 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 the 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 credit is set forth by the Macau Civil Code, which defines it 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 credit (eg, through a mortgage or pledge), privileged credit does not need to be registered and it is the highest-ranked form of credit, having first priority over other obligations of the debtor.
According to the Macau Civil Code, privileged credit is of two types:
The ranking of privileged movable credit is as follows:
As far as special privileged credit is concerned, under the Macau Civil Code, it is stated that:
Liquidation of Assets
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 the 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 a 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 co-operation, 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 No 55/98/M (23 November 1998). This regime is similar to the United Nations Commission on International Trade Law (UNCITRAL).
With regard to recognition in the 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 that 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 credit, 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 credit 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.
This 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 partnerships have been embraced by the government in numerous areas, such as water, electricity, airport operation, transport, education and telecommunications.
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 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. Furthermore, the form of the project company can be chosen within the typical legal 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.
Regarding the working environment in general, an employer must comply with the rules provided under Decree-Law No 37/89/M (the “General Regulation of Work Safety and Hygiene of Offices, Services and Commercial Establishments”), in order to provide a safe and clean working environment for its employees. Failure to comply with those rules may result in the employer being fined, according to the provisions set out by Decree-Law No 13/91/M ("Sanctions for Non-compliance with the General Regulation of Work Safety and Hygiene of Offices, Services and Commercial Establishments").