Moody’s Investors Service Inc says it expects casino operator Melco Resorts and Entertainment Ltd to resume quarterly dividend payments “only in 2024,” as the Macau gaming market recovers. That is because the firm’s earnings and financial leverage are expected to “remain weak till 2023,” the institution said in a Wednesday report.
Melco Resorts, controlled by entrepreneur Lawrence Ho Yau Lung, has business in Macau, the Philippines, and the Republic of Cyprus.
Melco Resorts’ adjusted debt – including lease liabilities – are expected to “increase to around US$8.1 billion by year-end 2022, from US$7.0 billion as of year-end 2021 and US$4.9 billion as of year-end 2019,” stated Moody’s. That was because the casino firm was “funding most of its capital spending with additional debt, as a result of pandemic-driven weak earnings and operating cash flow.”
The rating agency said it expected Melco Resorts adjusted debt to earnings before interest, taxation, depreciation and amortisation (EBITDA) “to be around 7.3 times in 2023, improving to 4.8 times in 2024, compared with 3.3 times in 2019.”
“Melco Resorts has suspended dividend payments to preserve its liquidity since the first half of 2020. We assume that Melco Resorts will resume quarterly dividend payments only in 2024, in line with the likely earnings recovery,” noted Moody’s.
The comments are part of a credit opinion on Melco Resorts’ unit, Melco Resorts Finance Ltd. The latter company has a corporate family rating of ‘Ba3’, with a ‘negative’ outlook. The rating is considered non-investment grade, with “speculative elements” and subject to “substantial credit risk”.
Moody’s also said in the update it had lowered its forecasts for the city’s mass-market casino gross gaming revenue (GGR) in 2022 and 2023, to around 40 percent and 80 percent of 2019 levels, respectively.
“We now expect full recovery in Macau’s mass-market GGR only in 2024,” said the institution. “Macau’s VIP revenue is unlikely to recover significantly because of junket closures, although this situation will have limited impact on Melco Resorts earnings because of the VIP segment’s low earnings contribution (less than 10 percent of EBITDA in 2019),” it added.
The ratings agency said it expected a “faster recovery” in Melco Resorts’ operations in the Philippines, “as a result of easings in the country’s pandemic-related restrictions.” But it cautioned that it only assumed “a full recovery” in that market “in 2024 when Chinese tourists return.”
Studio City outlook
On Wednesday, Moody’s also published a report on Studio City Finance Ltd, the promoter of the Studio City casino resort in Macau. Studio City Finance is a subsidiary of Studio City International Holdings Ltd, the latter majority-owned by Melco Resorts.
“Weak operating cash flow, coupled with the capital spending for the phase-two project, will drive a further increase in debt this year” for Studio City Finance, suggested the institution.
“Assuming a partial earnings recovery in 2023 and a more substantial recovery in 2024, we project Studio City Finance’s adjusted debt to EBITDA will be 10.5 times in 2023, before declining to 5.2 times in 2024, compared with 4.1 times in 2019,” stated the report.
It added: “We expect Studio City Finance’s capital spending to peak at around US$550 million this year, mainly reflecting its Studio City phase-two expansion. The company’s capital spending will likely decline substantially in 2023 once the phase-two project is expected to be completed by the end of this year.”
The Studio City extension is due to have 900 rooms shared between two luxury hotel towers. The “W Macau – Studio City” is due to have 557 guest rooms, including 127 suites.
Melco Resorts’ Mr Ho said on the firm’s first-quarter conference call that the group was confident of completing construction of Studio City Phase 2 by December this year.
The group has been given a further six-month extension – to June 30, 2023 – by the Macau government on the deadline by which it must complete development of its Studio City’s land concession.
