The combined net debt of the six licensed casino operators in Macau has reportedly quadrupled since the start of the coronavirus pandemic in late-2019 to currently stand at more than $20 billion.
According to a report from Inside Asian Gaming, this potentially worrying news was unveiled by global brokerage and investments firm Morgan Stanley following a weekend in which the sextuplet saw the aggregated value of their share portfolios drop by 8.7% to stand at approximately $46.66 billion. The source detailed that this decrease came despite a revelation that the government for the former Portuguese enclave had provisionally agreed to extend the operators’ lucrative concessions by a further six months to the end of the year.
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 as well as the local Wynn Macau Limited and Sands China Limited subordinates of Wynn Resorts Limited and Las Vegas Sands Corporation respectively. Morgan Stanley analysts Gareth Leung and Praveen Choudhary reportedly used a filing to disclose that the six firm’s aggregated net debt had topped $19 billion in December and could now go on to exceed $23 billion by the end of the year.
The Morgan Stanley pair reportedly furthermore divulged that this mounting debt has driven down valuations while the continuing presence of coronavirus outbreaks in Hong Kong and mainland China is doing nothing to help assuage investor fears. The two analysts purportedly also cited uncertainties connected with Macau’s under-consideration draft gaming bill and its associated license renewal process as contributing factors to the ongoing financier fatigue.
However, Leung and Choudhary reportedly observed that some of the Macau sextuplet had managed to turn in positive quarterly earnings before interest, tax, depreciation and amortization figures at various points over the course of the past two years while remaining free cash flow to equity negative.
Reportedly read a statement from Leung and Choudhary…
“In the last six quarters since the Individual Visit Scheme (IVS) opening between Macau and the mainland, the industry has tracked Chinese visitation at 20% to 30% of 2019 levels, mass revenues at 30% to 40% of 2019 levels and earnings before interest, tax, depreciation and amortization at break-even or 5% of 2019 levels. The issue of earnings before interest, tax, depreciation and amortization positive but free cash flow to equity negative is that the sector added debt.”
The Morgan Stanley duo reportedly went on to note that Galaxy Entertainment Group Limited is the only Macau casino operator to currently be free cash flow to equity positive. Nevertheless, they purportedly finished by predicting that competitors Sands China Limited and Melco Resorts and Entertainment Limited could well follow suit if they can continue growing their mass-market revenues.