Macau casino operator MGM China Holdings Ltd might be able to bring its leveraging down to “near pre-pandemic levels” by fiscal year 2024, as the company is expected to generate positive earnings before interest, taxation, depreciation and amortisation (EBITDA) and free cash flow (FCF) in the current fiscal year, suggested Singapore-based Lucror Analytics in a Friday note.
The memo followed MGM China’s second-quarter results. Quarterly performance “remained strong relative to the 2019 level”, and reflected the “maturity” of the MGM Cotai resort and the company’s “successful pivot towards the premium mass segment”, said credit analyst Leonard Law, referring to the newer of the firm’s two Macau properties, which opened in 2018. The first to be opened was MGM Macau on the city’s peninsula.
“We expect the company to generate positive EBITDA and FCF in fiscal year 2023, which may enable it to gradually deleverage to near pre-pandemic levels [of leveraging] by fiscal year 2024,” wrote Mr Law.
He also noted in the memo on the Smartkarma platform: “MGM China has modest capital expenditure plans and historical lower dividend payouts compared to peers, which should support earlier deleveraging.”
As at June 30, MGM China had total cash and cash equivalents of over HKD3.51 billion (US$450.0 million), and access to approximately HKD7.32 billion and HKD5.88 billion respectively, in relation to undrawn credit facilities. That is according to the company’s interim results filing lodged with the Hong Kong bourse on Friday. The latter amounts relate to unsecured credit facilities and revolving credit available via its United States-based majority owner, MGM Resorts International.
MGM China had a net current liability, as at June-end, of nearly HKD5.12 billion, it stated in the Friday filing.
The earliest maturity date on MGM China notes falls on May 15, 2024. That is when the company’s US$750-million, 5.375-percent senior unsecured notes come due, Lucror Analytics highlighted in the note.
“We expect the company to issue new bonds to repay the 2024 notes. That said, in the unlikely event it is unable to issue new bonds, MGM China can draw on the US$750-million subordinated revolving loan facility – due November 2024 – from MGM Resorts, or tap on the revolving credit facility (US$934 million as at end-June, 2023) as a contingency plan,” wrote Mr Law in the Friday note.
