The M&A market in the Macau Special Administrative Region (the Macau SAR) has experienced significant challenges in the last 12 months, especially due to the COVID-19 pandemic. Macau closed its cross-boundaries with several provinces of China during most of 2020. To date, the gateways to Macau's cosmopolitan neighbour Hong Kong, and the rest of the world, are still closed.
A few weeks after the outbreak, the Macau government put in place several measures to reduce the impact of COVID-19, which included exemption or reduction of taxes, interest-free loans to SMEs, development of human resources and vouchers to consumers (a stimulus scheme to incentivise consumption). It is expected that such measures will continue to be enhanced by the government without prejudice of budget constraints, even with the public coffers loaded and with reserves for years to come. It is yet to be announced whether such budget restrictions, which impacted particularly SMEs’ businesses, will continue to be the rule, despite the plans for public investment in the near future.
One thing seems to be sure: central and local governments are striking a compromise between social stability and the growth of the economy.
Gaming operators (concessionaires and sub-concessionaires) are the biggest employers in the region and have shown availability to assist the local SMEs with several public initiatives in which the focus was to keep alive the local market, deprived of tourists.
Macau had 5.8 million tourists in 2020, which is 85% less than the all-time record of 2019, with almost 40 million visitors crossing the region's air, sea and land borders.
However, some steps have been taken in what can be seen as chess moves towards the announced, but yet to be confirmed, international public tender for new concessions, which is due to take place before 27 June 2022. Specifically, there were acquisitions involving gaming promoters in a process of consolidation of the market in order to deal with restrictions imposed by the central government to the gaming destinations of its citizens. (Despite not being named publicly, it is believed that such destinations include South -East Asian countries such as the Philippines, Myanmar, Malaysia and Vietnam, with Macau not certain to be in the radar.).
We have seen some other interesting movements in terms of M&A, especially due to consolidation, mergers and acquisitions at the foreign holding companies level, namely the insurance industry.
There are no statistics available concerning the M&A market. Nonetheless, even with the impact of COVID-19, there were 5,865 companies incorporated in Macau in 2020, with the wholesale and retail trade, together with the business services sectors, representing more than half of those companies. There were 467 Macau companies incorporated with capital from the Greater Bay Area in a total of 728 incorporated with capital from China.
Macau has also seen its financial institutions reinforcing and expanding their M&A teams to develop opportunities in other markets, such as the Portuguese-speaking countries, as well as Central and South Asia.
Central government is likely to encourage Chinese companies to continue increasing their presence in the Macau SAR by purchasing shareholding positions and replacing other foreign investors in the shareholding structures of Macau-incorporated companies.
Banking, energy, telecommunications and public transportation have been sectors in which Mainland Chinese investors have either entered or increased their shareholding position. This trend may be seen as a means to catch opportunities in the Portuguese-speaking markets through the Macau platform.
The Greater Bay Area plans, as well as the now stronger possibility of a stock exchange being implemented in Macau, are two factors to take into consideration when envisaging the future of M&A transactions in the coming years.
Included in the Greater Bay Area Plan of the central government of the People’s Republic of China, Hengqin Free Trade Zone (FTZ) is only 34 nautical miles from Hong Kong and a mere 187 metres from Macau, and has seen more than 3,000 Macau companies establishing a form of representation in recent years. Considering the tiny area of Macau, this FTZ shall see Macau M&A moves in the years to come, as it has in place measures concerning the acquisition of land, industrial construction and infrastructure, and access by Macau businesses and employees to public resources. It has also established financial co-operation with local Macau banks and insurers with headquarters (present or planned) opened to facilitate economic development.
Hengqin aims to develop tourism, leisure, healthcare, commercial and financial services, culture, science, education and hi-tech industries. Macau shall take advantage of this national initiative to leverage its economy. It is worth mentioning that cross-boundary controls have been simplified, and new projects have been or will be completed in a short term within the FTZ.
Macau is heavily dependent on tourism and gaming. In 2020, GDP contracted 56.3% year-on-year in real terms, mainly because of the disruption to travel due to the restrictions imposed by the local government to fight the pandemic. This had serious consequences to the gaming industry, which has seen the casino gross gaming revenue (GGR) contracting 79.3% compared with 2019.
It is yet to be confirmed whether the Macau government will launch the international public tender to award new concessions for the operation of games of fortune and chance and other casino games before the end of the current concession contracts, which will occur on 27 June 2022.
This is a decisive moment for the economy of the region, which – together with the impact of COVID-19 – may boost potential mergers and acquisitions in the gaming space.
Finance and banking, insurance, IT and other technology industries with e-commerce and cashless service providers, traditional Chinese medicine (one of the key sectors for Hengqin FTZ), health technology and cultural industries are likely to be the most active concerning M&A transactions in 2021. The Macau government seems to consider the diversification of the economy as one of the most important points for the development of the region.
Macau in the Greater Bay Area
The Guangdong–Hong Kong-Macau Greater Bay Area (GBA) is a national initiative highlighted in the Chinese government’s 13th Five Year Plan, aiming to build a globally competitive mega-region and, by 2035, to build a productivity cluster, serving as a key facilitator of the Belt and Road Initiative.
The GBA comprises 11 Pearl River Delta cities, including the two Special Administrative Regions. Its development is a priority for the Chinese government in its plan to transition China from a manufacturer of low-end goods to high-end technology and to gradually integrate until 2047 and 2049 the two special administrative regions of Hong Kong and Macau, respectively.
As previously mentioned, the Chinese government has voiced its support for the diversification of Macau's economy, suggesting plans for the implementation of a renminbi (RMB)-denominated stock exchange in Macau and supporting this region to become an RMB clearing centre for the Portuguese-speaking countries markets.
A bond “exchange” was created – Chongwa (Macao) Financial Asset Exchange co (MOX) – which focuses mainly on the issuance of bonds by the Chinese government, by Chinese and local companies, and by governments or companies of Portuguese-speaking countries. Signalling its support for Macau's efforts, in 2019 the Chinese government issued its first offshore bonds in Macau.
All of the above initiatives may attract new business and a new type of investment to Macau, which in turn may result in significant new opportunities for local and foreign investors.
Macau as a platform with Portuguese-speaking countries
The role of Macau as a platform between China and Portuguese-speaking countries – which represent a population of more than 200 million people, Portuguese being the most spoken language within the southern hemisphere – was defined by the central government almost two decades ago. The local government understands that building an international hub for trade between China and Portuguese-speaking countries will contribute to Macau’s good performance for trade activities between the two trade blocks.
The goal is to develop a modern financial industry and a service platform for trade co-operation between China and Portuguese-speaking countries, all at the service of the Greater Bay Area initiative, promoting, innovating, and developing technologies in the financial sector. The government aims to construct a financial, tangible and intangible infrastructure, and to improve the legal regime for the financial sector.
It is expected that these goals will enhance the appetite of Chinese and international players, especially those with interests in the Portuguese-speaking space, to establish entities in Macau or to acquire Macau financial and financial services entities.
This shall be accompanied by certain reforms in the financial legislation, which will need to be amended and/or put in place.
The Macau government has defined the "cashless society" as one of the goals for the next five years. The Monetary Authority of Macau (AMCM) has already put in place an integrated payment platform that will allow the region to have an all-inclusive tool to make payments.
According to AMCM, “Banks and other financial institutions have embarked on works regarding the integration of payment platforms between each other, and also between merchants”.
The COVID-19 situation has given a definitive boost to the cashless society, in line with the success experienced for some years in Mainland China.
International, regional and local players have already a significant presence in the region, and it is expected, in the near future, this area of the business will become an anchor for IT-innovative entities and other industries.
New e-government law entered into force in September 2020, permitting public bodies to undertake various actions and formalities electronically.
Together with the legal regime for electronic documents and signatures in Macau, which is in force since 2005, Law 2/2020 provides the tools for modern and paperless administrative proceedings.
It is now possible to execute an entire proceeding and prepare the corresponding final decision electronically, without any paper-based processes or documents. This will include the possibility of:
This new law is seen as a landmark development milestone tool to implementing e-government, and thereby assisting Macau to become a "smart city", which will foster the economic development of Macau and its integration in the Greater Bay Area.