Casinos in Macau have ‘at least six months of breathing room’ before crisis

Analysts say most casino operators are well placed to weather the Coronavirus storm.

Macau.- Analysts have said that Macau casinos have ‘at least six months of breathing room’ before they would have to look at additional debt financing.

JP Morgan analysts said: “April could possibly be the worst month since the first Vegas-type casino opened in 2004. We wouldn’t be surprised to see Macau printing near-zero GGR until the restrictions at the Guangdong border are lifted.”

Sanford Bernstein analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu said: “While there are no medium-term (less than six months) concerns around liquidity, the longer the revenue drought continues, the spotlight will shine brighter on individual companies’ liquidity.”

Macau reported an 80% drop in gambling revenue in March and the trend looks set to continue for the next few months.

“All operators have at least six months or so of breathing room before needing to draw on any additional debt financing, which all operators will be able to do via their revolvers at a minimum (before needing to find other liquidity),” added the Sanford Bernstein analysts.

“Galaxy is clearly the least risky operator with abundant cash on hand, no debt and in a worst-case scenario, 40 months or so of breathing room before needing to draw on any new liquidity.

“If the no-revenue environment were to last longer, all operators have at least 15 months or so of breathing room (except for Studio City, which has only a year) before running out of existing liquidity. Other operators have between six and 17 months of headroom with existing cash balances and 15 to 25 if the full amount of each company’s revolver is drawn (excluding Studio City).

Studio City is a Cotai casino resort majority-owned by Melco Resorts and Entertainment. These figures assume a worst-case outcome of no revenues, limited reduction in operating costs, minor reduction in maintenance capex and other company-specific items.

Questions remain on Macau’s dividends for the remainder of the year and the analysts agree that it’s a grey area to draw conclusions upon.

“Wynn Macau announced that it would delay its final dividend until there is more clarity around a recovery. MGM China, Galaxy, Melco and SJM have made dividend payments earlier this year, with future payments this year uncertain. Sands China is yet to announce its second dividend it usually pays in June (and announces in March).

“Its liquidity would only allow a dividend if it were to draw on its revolver (something it did during 2016).”