Having burned cash throughout the dark days of COVID, Macau’s casinos could finally get their debt levels back to pre-COVID levels within three years.
Morgan Stanley analysts Praveen Choudhary, Gareth Leung, Stephen Grambling and Nicholas DeValeria highlighted that net debt for the entire Macau casino sector had increased from US$17bn to over Us$20bn since the end of 2019. However debt has shrunk by US$1.7bn over the last six months.
The Morgan Stanley analysts said: “The pace of deleverage could pick up from 2H23 as business volumes continue to ramp. It could take the industry roughly three years to delever and get back to 2019 net debt levels, based on US$6bn annual FCF (free cash flow).”
They warned however: “Non-gaming commitment is not free and is cash outflow. We estimate the average yearly spend (over 10 years) to be 20 per cent of 2024 EBITDA. To understand which company could be stressed, one can also look at net debt/market cap and EBITDA coverage of interest expense. In terms of debt as a percentage of market cap, Melco is the worst positioned at 131%, while Wynn and SJM are at 101 per cent. EBITDA coverage is much more comfortable for all, with the lowest being 2.5x for Wynn, Melco and SJM. “
They added: “[The situation at] MGM seems much better than at SJM, Melco and Wynn, with MGM’s debt position to be aided by the addition of 200 new gaming tables.”