MGM China Holdings Ltd., the Chinese unit of the U.S. casino operator MGM Resorts International (NYSE:MGM), recently announced that it will invest around 4.8 billion patacas ($594 million) in the MGM Grande Paradise unit, its casino operator in Macau. The move comes as the company tries to abide by the new rules applicable for license renewals in the world’s biggest gambling hub, as licenses will expire at the end of this year.
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Macau updated its gambling laws earlier this year, with the objective to increase regulatory control and supervision. It also aims to bring companies’ operations in line with China’s national security interests, according to a Wall Street Journal report.
Under the revised law, bidding companies are required to raise 5 billion patacas (nearly $619 million) to reapply for licenses. This will also ensure that the applicants have sufficient financial flexibility. The city still aims to keep a maximum of six casino licenses. However, the validity of a license has been reduced to half from the previous tenure of 20 years.
Another new rule is that at least 15% of the capital (previously 10%) of the casino unit should be held by the Managing Director, who needs to be a permanent resident of Macau, per the report.
In accordance with this rule, MGM China will also name Pansy Ho, a Co-Chairperson, as the Managing Director of MGM Grand Paradise. Ho will get an annual salary of $8 million if the license is renewed. MGM China will also transfer 730,000 Class B shares to Ho to comply with the updated capital guidelines.
On the receipt of the new concession, MGM China and Ho will hold stakes of around 84.6% and 15%, respectively, in MGM Grande Paradise. Meanwhile, the shareholding of MGM Resort International will fall to 0.4% from 10%, according to a Reuters report.
Is MGM Stock a Buy or Sell?
MGM Resorts seems to be a good stock to grab now. Analysts on TipRanks have a Strong Buy rating on MGM stock, which is based on nine Buys and three Holds.
Similarly, financial bloggers are 88% Bullish on MGM in comparison to the sector average of 69%. Also, retail investors tracked by TipRanks have increased their portfolio holdings in MGM by 3.4% in the last 30 days.
What Is the Forecast for MGM Stock?
MGM’s average price forecast of $52.58 implies a 51.4% upside. The U.S. gambling company looks well-positioned to gain from the easing of COVID-19 restrictions and improving travel demand. Further, with MGM shares down 23.6% year-to-date, the renewal of the company’s gambling license in the world’s largest gambling hub is expected to give the stock a much-needed boost.
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