As long as China sticks to a “Covid zero” strategy, Macau can expect some limitations to recovery of its casino business, said on Tuesday Lawrence Ho Yau Lung (pictured in a file photo), chairman and chief executive of casino operator Melco Resorts and Entertainment Ltd.
“As a company we are prepared for the worst, as part of our budgeting,” he told investment analysts during Melco Resorts’ third-quarter earnings call.
“Given Covid zero, I think we are really going to be range bound for the next six to 12 months. As long as China continues with the zero Covid path, we are going to assume there are going to be [Covid-19] cases,” he stated.
“As of right now, almost half the Chinese provinces have cases, and that has affected travel,” Mr Ho noted.
He added that a number of key events next year, including the Winter Olympics in Beijing, the 25th anniversary of the handover of Hong Kong, and the 20th National Congress of the Communist Party of China, were among “reasons to be super-conservative in terms of opening up,” regarding easing of travel conditions between Macau and the mainland, as well as between Hong Kong and the mainland and Hong Kong and Macau.
Mr Ho also said that Macau’s VIP gaming business was “structurally impaired”. The comment was made in the context of a question about a continuing focus in China on limiting consumer extravagance as part of the country’s ‘common prosperity’ policy.
In the future, Macau gaming is “going to be focused more on mass, and mass is going to need more amenities and more non-gaming attractions,” added Mr Ho.
During the call, Geoffrey Davis, chief financial officer of Melco Resorts, mentioned that with effect from Monday, all of the group’s lenders had agreed to extend until December 2022 – from December this year – waivers on financial covenants.
The CFO also said that at end of September, the group had approximately US$1.5 billion of consolidated cash on hand.
“When combined with our undrawn revolver facilities in Macau and Manila, of approximately US$2 billion, this implies available liquidity of approximately US$3.5 billion,” he noted.
Mr Davis said Melco Resorts recently repurchased approximately 3.1 million American depositary shares for US$31 million: 2.1 million shares were purchased in the third quarter, and approximately 1 million shares were purchased in the fourth quarter to date.
Recent volatility had led to “compelling valuations” in terms of the opportunity for buybacks, said the CFO.
During the third quarter, Studio City’s earnings before interest, taxation, depreciation and amortisation (EBITDA) were negatively affected by an unfavourable VIP win rate, by approximately US$4 million.
A favourable VIP win rate positively affected EBITDA at City of Dreams in Macau, and City of Dreams Manila, by approximately US$1 million and US$2 million, respectively.
Mr Davis said that for the fourth quarter, total depreciation and amortisation expense was expected to be approximately US$145 million.
Corporate expense was anticipated to be US$18 million to US$20 million and consolidated net interest expense was expected to be in the range of US$85 million to US$95 million, which included finance lease interest of US$7 million related to City of Dreams Manila, and US$8 million to US$10 million of capitalised interest.
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"The resurgence of Covid cases in China is again delaying a market recovery [in Macau] and is a credit negative"
Vice president and senior credit officer at Moody’s Investors Service