Macau Casino Operators Facing Another Cash Crunch, Say Analysts

Reminiscent of the early days of the coronavirus pandemic, some casino operators in Macau are running low on cash. Morgan Stanley analysts estimate some will survive just months at current burn rates.

The bank says concessionaires in the world’s largest casino hub are losing $800 million on a quarterly basis and burning through $250 million in free cash flow. Grand Lisboa operator SJM Holdings appears to be the worst in terms of capital needs, as it could expend its cash in just three months. That assessment doesn’t account for the company’s access to a $170 million credit facility, according to Morgan Stanley.

Survival is key in this stage,” note Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Thomas Allen. “Of course, companies can raise new debt, but current bond yield suggests it will be expensive.”

At the other end of the spectrum is Galaxy Entertainment, which the analysts say is the one of the six Macau operators without imminent cash needs. That company has $5 billion in cash on hand.

Where Other Operators Fit In

Morgan Stanley’s gloomy assessment on the potential capital needs of Macau concessionaires is the second this month. It arrives less than two weeks after the bank said debt burdens among the operators are ballooning since the start of the pandemic.

Prior to the global health crisis, the concessionaires had just $5 billion in combined liabilities. But that figure has since risen to $20 billion, and is on pace to eclipse $23 billion by the end of this year.

Morgan Stanley points out Wynn Macau and Melco Resorts & Entertainment (NASDAQ:MLCO) have enough capital to survive 15 and 18 months, respectively, at current burn rates.

Selling Debt Not Appealing Option

Operators could sell debt to raise cash, but that’s not an appealing option, with many saddled with non-investment grade credit ratings. For example, Standard & Poor’s last month lowered its grades on LVS and the operator’s Sands China unit to “BB+,”or one notch into junk territory, from “BBB-.”

Likewise, selling equity dilutes current investors, and is likely to be met with derision among investors at a time when shares of Macau operators are sagging.

“The total market cap of Macau stocks at US$58 billion is still close to the all-time low (and similar to January 2016),” say the Morgan Stanley analysts.