Management at Macau casino operator SJM Holdings Ltd says the firm has the possibility of asking for a HK$5-billion (about US$637-million) loan from its largest shareholder STDM, if faced with liquidity problems. The information was provided in a call with investment analysts after SJM Holdings announced its first-quarter unaudited earnings to the Hong Kong Stock Exchange.
Brokerage Sanford C. Bernstein Ltd said in a Tuesday note that “the continued delays” faced by SJM Holdings regarding refinancing bank debt, “raise concerns”.
“Management has indicated that a standby loan facility of up to HK$5-billion may be forthcoming from controlling shareholder STDM, but no details were provided,” said Sanford Bernstein analysts Vitaly Umansky and Louis Li.
They added: “Management also confirmed that there is no [gaming regulator] or government approval in terms of the potential shareholder loan nor is any bank covenant limiting the ability to draw funds from STDM”.
According to the brokerage’s note, “SJM Holdings says under current conditions, the company only has liquidity on hand of three to four months, so shoring up the financing is critical.”
A Tuesday memo from JP Morgan Securities (Asia Pacific) Ltd said the casino firm’s recurring monthly “cash burn” is around HKD400 million, indicating that its current level of available cash provides liquidity “only up to July or so”. The institution was picking up on a theme it raised in a recent note about SJM Holdings.
But JP Morgan added that – following the earnings call with management – it was more confident about the casino firm’s liquidity outlook.
“Management indicated… that its controlling shareholder STDM is ‘standing by with up to HK$5-billion’ in shareholder loans that could be used as a bridge loan until the company successfully refinances” its existing bank loans, wrote JP Morgan analysts DS Kim, Amanda Cheng, and Livy Lyu.
The analysts added that the casino group’s management thinks it can execute such a shareholder loan “within a few weeks,” if it opts for that route.
The context, said the institution, was that SJM Holdings’ effort to secure “upsized bank loans” – from the current level of HK$13.3 billion to HKD19 billion, with extended maturity beyond February 2023 – “are still pending government approval, and we think they might be approved only when/after the [Macau] gaming licence is renewed by end-2022.”
Following the SJM Holdings earnings call, JP Morgan also mentioned another headwind for the casino group: its exposure to so-called satellite casinos, that are owned by a third party, but respectively rely on the gaming licence of one of the incumbent six Macau operators.
Under Macau’s revised gaming law, currently passing through the city’s Legislative Assembly, the ownership of the gaming portion of satellite properties will need to pass to a gaming concessionaire. The promoter of one SJM Holdings’ satellite – the Grand Emperor Hotel – has already said it will cease offering casino gaming by June 26 this year.
JP Morgan stated in its Tuesday note: “SJM Holdings’ 14 satellite casinos employ around 6,900 staff, accounting for about one-third of the total staff count,” of the group.
The institution added: “This could lead to an additional operating expenses burden for SJM Holdings in the second half of 2022, as it may need to convert some staff – i.e., the staff from satellite casinos that decide to cease gaming operations – onto its direct payroll.”
Gaming staff at satellite casinos are officially employed by whichever casino concessionaire is supplying its gaming licence for the property in question. The Macau government has been pressing casino concessionaires not to sack workers that have Macau ID. The negative economic impacts of Covid-19 have recently led to a rise in local unemployment.
Following the first-quarter numbers for MGM China Holdings Ltd on Monday, and for SJM Holdings on Tuesday, and also the sluggish performance seen in April casino gross gaming revenue (GGR), coinciding with Covid-19 outbreaks in mainland China – Andrew Lee, an analyst at brokerage Jefferies Hong Kong Ltd, gave some general commentary on the Macau outlook for the rest of the year.
He stated: “We factor in a slower GGR rebound… with 2022 at only 31 percent of the 2019 pre-Covid level,” versus the brokerage’s previous estimate that such GGR would be 42 percent of 2019’s.
