Casino operator Melco Resorts and Entertainment Ltd “may need to raise dividends” on behalf of its parent, Melco International Development Ltd, to help the latter fund its share of a non-gaming scheme, including a theme park, in mainland China, says a Wednesday note from the Morgan Stanley banking group.
Melco Resorts “may need to raise dividends to support Melco International,” as the latter had “a HKD2.2 billion [US$283 million] cash outflow commitment for the newly-won theme park project in Zhongshan, Guangdong province,” said Morgan Stanley analysts Praveen Choudhary and Gareth Leung.
Melco Resorts had said – in its first-quarter 2020 results – that it was suspending its quarterly-dividend programme to “preserve liquidity” amid the disruption to its business caused by the Covid-19 pandemic.
Hong Kong-listed Melco International also paused its dividend programme at that time.
Melco Resorts runs casinos in Macau, one in Manila in the Philippines, and is a partner in a monopoly licence for the Republic of Cyprus.
Morgan Stanley said the dividend received by Melco International from Melco Resorts was HKD1.4 billion in 2019 and “expected to be HKD1.0 billion in 2022”, assuming the dividend programme was reinstated by then.
Morgan Stanley noted its Wednesday memo that as of the end of 2020, Melco International – excluding Melco Resorts’ commitments – had HKD6.7 billion net debt “with no real assets”.
Therefore, Morgan Stanley said, “the additional cash commitment,” of circa HKD2.2 billion regarding Zhongshan, “is not small”.
According to a Wednesday announcement from Melco International about the Zhongshan scheme – which will be in partnership with a Hong Kong-listed mainland property developer – the Melco side’s commitment will be CNY150 million (US$23.2 million) towards the acquisition of the land; and CNY250 million for the development of the project.
Melco International will also fund the construction costs and pre-opening expenses of the theme park, which are budgeted at over CNY1.45 billion; as well as fund the ongoing operational costs of that venue.
A recent research paper from two Macau gaming law experts said the Macau government might seek forms of in-kind benefit other than licence fees and taxation from Macau casino companies that wish to take part in a new public tender process associated with the 2022 expiry of the six current gaming licences in the city.
This might include, said the paper’s authors, proposals for investment in the Guangdong-Hong Kong-Macau Greater Bay Area.
A Wednesday note from brokerage Sanford C. Bernstein Ltd said it was likely Melco Resorts’ cause regarding a fresh tender for Macau gaming rights, would be helped by its parent’s project in Zhongshan.
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