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China – Macau’s casino operators have ‘at least six months of breathing room’

By - 2 April 2020

With estimates that revenue from Macau’s casinos could be close to zero, analysts at Sanford Bernstein have said the six licence holders have ‘at least six months of breathing room’ before they would have to look at additional debt financing.

Sanford Bernstein analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu said: “While there are no medium-term (less than six months) concerns around liquidity, the longer the revenue drought continues, the spotlight will shine brighter on individual companies’ liquidity.”

“All [Macau’s] operators have at least six months or so of breathing room before needing to draw on any additional debt financing, which all operators will be able to do via their revolvers at a minimum (before needing to find other liquidity). Galaxy is clearly the least risky operator with abundant cash on hand, no debt and in a worst case scenario, 40 months or so of breathing room before needing to draw on any new liquidity.”

“If the no-revenue environment were to last longer, all operators have at least 15 months or so of breathing room (except for Studio City, which has only a year) before running out of existing liquidity. Other operators have between six and 17 months of headroom with existing cash balances and 15 to 25 if the full amount of each company’s revolver is drawn (excluding Studio City). Studio City is a Cotai casino resort majority-owned by Melco Resorts and Entertainment. These figures assume a worst-case outcome of no revenues, limited reduction in operating costs, minor reduction in maintenance capex and other company-specific items.”

The analysts said there were ‘questions surrounding dividends’ for Macau operators this year.

“Wynn Macau announced that it would delay its final dividend until there is more clarity around a recovery. MGM China, Galaxy, Melco and SJM have made dividend payments earlier this year, with future payments this year uncertain. Sands China is yet to announce its second dividend it usually pays in June (and announces in March). Its liquidity would only allow a dividend if it were to draw on its revolver (something it did during 2016).”

Macau’s GGR dipped by 79.7 per cent in March with Bernstein believing April GGR fall by between 87 and 92 per cent in year-on-year terms. “The gaming operators and other Macau based contacts we have spoken with do not see any clarity on timing of recovery (visa situation improvement),” its analysts said.

Analysts at JP Morgan added: “April could possibly be the worst month since the first Vegas-type casino opened in 2004. We wouldn’t be surprised to see Macau printing near-zero GGR until the restrictions at the Guangdong border are lifted.”

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