Macau casino operators’ aggregate net debt could reach the equivalent of US$25 billion by the end of this year, “five times the end of 2019’s levels”, and 12 percent higher than a “base case” scenario, says a Sunday note from the Morgan Stanley banking group.
“This assumes China’s current strict travel restrictions stay in place for the rest of 2022 and mass revenue stays at March/April levels; 18 percent of pre-Covid,” wrote analysts Praveen Choudhary, Gareth Leung and Thomas Allen.
“If China’s travel easing gets delayed to the second half of 2023,” versus Morgan Stanley’s “base case” of early 2023, Macau operator’s aggregate net debt “could rise another US$2 billion, to US$27 billion by end-2023, by our estimates,” the institution added.
Brokerage Sanford C. Bernstein Ltd said in a memo last week, that its “channel checks” had indicated “frequent gamblers to Macau have seen visa issuance denied by China immigration offices”.
In a Monday memo, the same brokerage suggested that the “negative outlook” for Macau’s inbound tourism from mainland China was a factor in the Macau government suggesting it might be willing to offer a cut in tax levied on gaming, if local operators are eventually able to bring in foreign players.
Morgan Stanley said in its Sunday note, that Macau operators “except” SJM Holdings Ltd, “could sustain first-quarter 2022 cash burn rates – including development capital expenditure – for more than two years based on current cash and undrawn liquidity”.
The banking group added: “SJM’s cash could only be sustained for five months based on its first-quarter 2022 burn rate, but with undrawn liquidity after refinancing, it could last for 20 months.”
The institution also noted it regarded “interest coverage ratios more worrisome” for SJM Holdings and Wynn Macau Ltd, due to negative earnings before interest, taxation, depreciation and amortisation (EBITDA); and for MGM China Holdings Ltd, with 0.4 times EBITDA/net interest expenses in 2022.
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