Macau Casinos Will be Indebted to the Tune of $25 Billion by the Conclusion of 2022

June 22, 2022
Clinton Jacob Machoka

The net debt of six casinos in Macau is expected to reach $25 billion by the end of the year and rise to $27 billion by 2024.

Since the COVID -forced lockdown peaked, China's strict travel bans have hampered Macau's economic recovery, resulting in challenging times for several firms. Morgan Stanley's projections came up with $25 billion, noting a rise in earlier debt from $5 billion in 2019 to $20 billion as the causative factor.

According to analysts Praveen Choudhary, Gareth Leung, and Thomas Allen, extended reopening delays will only aggravate the Asian market; the $25 billion amount might be attained by the end of the year if limitations remain in effect.

Most people who follow the Macau casino sector were not surprised by the latest report. As the consequences of the constraints became apparent earlier this year, the stock prices of three of the area's six significant casinos fell by an aggregate of 9.2 percent.

Limitation effects

If China's limitations were extended until late 2023 rather than merely early next year, the already-existing challenges would further worsen.

As per Morgan Stanley, "if China's travel ease is postponed until 2H23, Macau's net debt might climb by $2 billion, reaching $27 billion by end-2023." "Mass revenue might be just 50% in 2019 versus the basic assumption of 95%."

Macau's economy has been in desperate need of a revival since 2020.JP Morgan anticipated that casinos would begin to recover in mid-August. Almost 18 months later, no meaningful rejuvenation process has started.

Unresolved Issues

A further segment of the analysis compiled by Morgan Stanley included an overview of the long-term projections of Macau's operators.

Except for SJM Holdings, the analysts determined that all companies were well-positioned to operate for more than two years if their first-quarter cash burn rates, comprising capital expenditure, were maintained.

"Based on its 1Q22 burn rate, SJM's cash could only be maintained for five months, but with overdraft liquidity post refinance, it might endure for 20 months," Morgan Stanley analysts noted. "Despite [possible] airline reopening, we anticipate net debt/EBITDA ratios for Macau companies at 4x to 6x by end-2023."

The travel issue continues to be an essential aspect in determining the market's direction. Macau had 655,505 tourists in February of this year, a considerable decrease from the 3.5 million in February.

Given that the Korean and neighboring markets had virtually dried up, mainland China accounted for approximately 93 percent of early 2022 tourists.

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