MGM China liquidity for 15 mths of nil revenue: brokerage
Macau casino operator MGM China Holdings Ltd has enough cash and credit available to last for up to 15 months of effective “shutdown” of the local gaming market without needing to find other sources of liquidity, said a Thursday report from brokerage Sanford C. Bernstein Ltd.
MGM China had HKD3 billion (US$387 million) in cash and a revolving credit facility from banks amounting to HKD4.5 billion, “which is enough for six to 15 months of shutdown,” said analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu.
Macau’s casinos are currently open, but with a low volume of customers due to a raft of travel and quarantine restrictions imposed by Macau and authorities in important feeder markets including mainland China and Hong Kong. Instinet LLC, the research arm of Nomura, said on Monday that the Macau tourism market might start to “reopen” in June.
Sanford Bernstein estimated that in a “worst case scenario” – where Macau casinos were either to be shut down or to have a “very low level” of business for “an extended period of time and with limited ability to reduce expenses” – then MGM China would have a daily “cash burn rate” of HKD16.1 million per day. The bulk of that was daily operating and corporate expenses of HKD11.7 million, as per management guidance, said the brokerage. Staff remuneration and utilities cost comprise most of such expenses, according to the note.
The institution noted the HKD3 billion cash estimate was subject to adjustment for “dividends announced”. In late March the board of MGM China Holdings recommended spending about HKD315 million on a final dividend for its 2019 business.
But Sanford Bernstein stated on Thursday: “Liquidity concerns are not a near-term issue even in a near zero-revenue environment.”
The brokerage added MGM China had “moderate leverage” of 2.9 times debt over last 12 month earnings before interest, taxation, depreciation and amortisation; equal to 2.6 times net debt, and had “obtained a [covenant] waiver on its bank debt through June 2021”.
The institution said in commentary on MGM China’s 55.95-percent owner MGM Resorts International that while there had been “talk by some investors” about MGM Resorts “selling its Macau operations, this construct is easier said than done”. The parent company has seen a general shutdown of its United States casino business amid the coronavirus crisis.
“There are a whole host of issues with trying to divest MGM China, including finding a buyer that the Macau government would agree to (not a very easy foray) and also dealing with MGM’s partner, Pansy Ho, who would not necessarily look favourably at a new partner,” said the brokerage’s analysts.
The latter was a reference to Pansy Ho Chiu King, a daughter of former Macau casino monopolist Stanley Ho Hung Sun. She helped bring the MGM brand to the Macau market via a casino sub-concession licence acquired for US$200 million via her father, founder of SJM Holdings Ltd, a current Macau operator.
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