The net debt of Macau’s six concessionaires could reach US$25 billion by the end of this year, and US$27 billion by end-2023, should recovery continue to be delayed by mainland China’s strict travel restrictions.
This is the scenario painted by investment bank Morgan Stanley in a note outlining liquidity issues facing Asia’s once dominant casino market. Having previously noted that net debt since 2019 has already increased from US$5 billion to US$20 billion, Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Thomas Allen note that further delays to border reopening could see net debt expand to US$25 billion assuming China’s current strict travel restrictions stay in place for the rest of 2022 and mass revenue stays at the levels seen in March and April.
The issue could be exacerbated further should border restrictions continue into 2H23, versus Morgan Stanley’s base case of early 2023.
“If China’s travel easing gets delayed to 2H23, Macau’s net debt could rise another US$2 billion, to US$27 billion by end-2023, by our estimates,” they write. In this case, “Mass revenue could be at 50% of 2019 only versus base case of 95%.
“Industry EV would be US$77 billion, implying 8x EV/EBITDA on 2024 [estimated] EBITDA.”
The analysts also provide an update to individual liquidity risk for each operator, noting that all except for SJM Holdings are positioned to sustain 1Q22 cash burn rates, including development capex, for over two years based on current cash and undrawn liquidity.
“SJM’s cash could only be sustained for five months based on its 1Q22 burn rate, but with undrawn liquidity after refinancing, it could last for 20 months,” they state.
“We estimate net debt/EBITDA ratios for Macau operators at 4x to 6x by end-2023 … despite [potential] travel reopening.”
