Macau casino operators facing free cash flow to equity run rate crisis

Home » Macau casino operators facing free cash flow to equity run rate crisis

Some of the largest casino operators in Macau may reportedly start running out of ready cash in as little as three months as China’s crackdown against the spread of coronavirus continues to limit travel to and from the mainland.

According to a Tuesday report from Inside Asian Gaming, this is the view of global brokerage and investments firm Morgan Stanley owing to the enclave’s six-strong club of licensed casino operators chalking up ever-declining free cash flow to equity run rates. The source detailed that the dire warning was followed by a prediction that the sextuplet could eventually be in a situation where it is leaking around $250 million in cash every quarter for an associated aggregated net debt in the region of $800 million.

Ascending arrears:

Macau is currently home to over 40 casinos operated by MGM China Holdings Limited, Galaxy Entertainment Group Limited, Melco Resorts and Entertainment Limited and SJM Holdings Limited in addition to the local Wynn Macau Limited and Sands China Limited subordinates of Wynn Resorts Limited and Las Vegas Sands Corporation respectively. The forecast from Morgan Stanley reportedly comes a little over a week after the same authority revealed that the six firm’s combined net debt had quadrupled since the start of the coronavirus pandemic in late-2019 to currently stand at more than $20 billion.

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High hazard:

Morgan Stanley reportedly disclosed that SJM Holdings Limited could well have exhausted all of its cash reserves by the conclusion of June at the fourth-quarter free cash flow to equity run rate. However, the expert moreover explained that the casino operator could soon decide to extend its existence by accessing an untapped revolving credit facility thought to be worth approximately $170 million.

Subsequent standing:

In a Monday note and Morgan Stanley analysts Thomas Allen, Praveen Choudhary and Gareth Leung reportedly noted that Sands China Limited and MGM China Holdings Limited are similarly racing against the clock with each holding only about nine months’ worth of cash. The trio purportedly went on to divulge that Wynn Macau Limited is a bit better placed courtesy of a 15-month window while Melco Resorts and Entertainment Limited is thought to possess enough funds to keep it going until the conclusion of 2023.

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Calm competitor:

The research report from Allen, Choudhary and Leung purportedly singled out Galaxy Entertainment Group Limited as the sole Macau concessionaire without any immediate worries as this Hong Kong-listed firm is free cash flow positive while holding a $5 billion war chest.

Reportedly read a statement from Allen, Choudhary and Leung…

“Survival is key at this stage. Of course, companies can raise new debt but current bond yield suggests it will be expensive. The total market cap of Macau stocks at $58 billion is still close to the all-time low and similar to January of 2016.”

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