Macau casino operator SJM Holdings Ltd’s free cash flow is likely to remain negative in fiscal year 2025 due to its pledge to fund the acquisition of a portion of Hotel Lisboa (pictured) as well as two other satellite casino properties. The company’s liquidity is also “inadequate” as it is facing “material” financing needs in the next fiscal year, says a memo from Lucror Analytics, a Singapore-based specialist in credit research.
SJM Holdings’ net debt has increased in the first half of the current fiscal year. That was in contrast to its Macau market peers, which mostly reported “stable or lower net debt”, observed Lucror Analytics, in a note carried on the Smartkarma platform.
SJM Holdings reported gross debt of HKD27.26 billion (US$3.49 billion) as of June 30, according to its interim results filing lodged with the Hong Kong bourse on August 28. The casino operator’s cash balance as of June-end was HKD2.4 billion, and its net debt stood at circa HKD24.9 billion, the latter figure up 3 percent from a year ago, noted Lucror Analytics.
“We believe free cash flow will remain negative in fiscal year 2025, as the company has to fund the HKD529-million acquisition of gaming space in Hotel Lisboa, as well as the two satellite casinos (for a currently undisclosed sum) this year,” remarked the institution. The latter venues are Ponte 16 and L’Arc Macau, which are to become SJM Holdings’ self-promoted casinos, the company flagged previously.
The Lucror Analytics memo added, referring to some commercial space on the neighbouring mainland territory of Hengqin Island, that SJM Holdings will convert into a three-star hotel: “The circa HKD800-million acquisition of the Hengqin property will be payable over three years.”
SJM Holdings currently operates eight satellite casinos, following the closure of Casino Grandview in July. Those eight satellite casinos collectively have circa 440 gaming tables and 300 slot machines, said Lucror Analytics. Macau’s old regulatory arrangement of allowing third-party investors to share benefits from gaming via the licences of Macau concessionaires, formally ceases at year-end.
Some satellite tables bound for Casino Lisboa
The SJM group is looking to allocate “25 percent to 35 percent” of its satellite-segment gaming tables and slot machines to a revamped and enlarged gaming area at the Hotel Lisboa. The group is acquiring space at the site, that would “double” the current capacity at Casino Lisboa, Lucror Analytics noted in its memo. It cited management remarks on SJM Holdings’ interim results earnings call.
As well as SJM Holdings being able to “optimise its assets”, via such steps, management “projects that excess staff costs arising from the shutdown of satellite casinos will be manageable: a problem the company faced in 2023 to 2024 after it closed five satellite casinos,” noted Lucror Analytics.
SJM Holdings has been encouraged by the city’s government to absorb the gaming staff from closing satellite properties and reassign them to other roles at the company.
As a result, the casino operator’s daily operational expense would be likely to increase by HKD100,000 to HKD200,000 per day – from HKD21.8 million per day as of the second quarter, Lucror Analytics noted, citing management remarks in the latest earnings call. In consequence, SJM Holdings would explore “various means to reduce costs”, added Lucror Analytics.
Meanwhile, SJM Holdings would face “material refinancing needs” in fiscal year 2026, as the company has a number of tranches of senior notes maturing within that year, the credit research specialist noted.
“These comprise the US$500-million bond due in January 2026, as well as the HKD1.25-billion notes and MOP300-million notes due in May 2026,” stated Lucror Analytics, adding it thought risk in relation to refinancing was “low”.
“The company will likely seek new bank loans to refinance the USD500-million bond, according to management.
“Meanwhile, SJM has HKD3.1 billion of undrawn credit availability out of its HKD19 billion syndicated loan facilities, which could cover the maturing Hong Kong dollar and Macau pataca notes,” observed Lucror Analytics.
