A US$500-million loan to Macau casino operator Wynn Macau Ltd from its United States-based parent Wynn Resorts Ltd, could indicate Macau brands are facing challenges to raise money at favourable rates on the open market, amid stagnation in the city’s casino earnings, says a Tuesday note from banking group Morgan Stanley.
Market wide, the institution expects second-quarter Macau casino gross gaming revenue (GGR) to be the equivalent of US$1.1 billion, i.e., down about 49 percent quarter-on-quarter, or 12 percent of second-quarter 2019, which would make the three months to June 30 “the third-worst quarter since 2020,” wrote analysts Praveen Choudhary, Gareth Leung and Thomas Allen.
Additionally, market-wide, “we estimate second-quarter corporate loss before interest, taxation, depreciation and amortisation [LBITDA] for Macau at negative US$600 million to negative US$700 million, versus negative US$9 million in first quarter 2022,” said Morgan Stanley.
Second-quarter free cash flow – after development capital expenditure – for the industry could be “negative US$1.6-billion to negative US$1.7 billion”, versus negative US$1 billion in the first quarter.
Wynn Macau Ltd second-quarter EBITDA could be at “roughly negative US$100 million” versus negative US$15 million in the first quarter, stated the analysts.
“This could imply operators having difficulties to borrow from banks,” stated the Morgan Stanley team.
The Wynn Macau Ltd loan facility has a maturity date of 24 months after the date of the agreement, and carries 4.0 percent interest, the Hong Kong-listed firm had said in a Tuesday announcement.
Market bond yields for Wynn Macau Ltd – which operates the Wynn Macau and Wynn Palace resorts in the city – currently were “12 percent”, said Morgan Stanley.
“Bond yields for most other Macau operators”… are “greater than 10 percent, making bond financing expensive,” wrote the analysts.
“We expect Sands China [Ltd] and SJM [Holdings Ltd] could announce similar [related-party loan] arrangements soon, unless SJM could complete refinancing soon.” That was a reference to a refinancing package of circa US$2.4-billion that Morgan Stanley recently said had been approved by the Macau government, but was still pending agreement via a syndicate of lenders.
Morgan Stanley said that based on first-quarter “burn rate”, Wynn Macau Ltd had cash “for 38 months” of operations, while MGM China Ltd, Sands China and SJM Holdings “have only fewer than 12 months’ worth”.
Wynn Macau Ltd’s quarterly loss widened to US$188.5 million in the three months to March 31.
Morgan Stanley expected Wynn Macau Ltd’s cash burn rate to be US$2.0-million per day for the second quarter. That would be nearly 82 percent above the first-quarter daily burn rate figure it quoted, amounting to US$1.1 million, indicated the institution.
