Macau gambling industry facing long road to recovery
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Macau’s casino industry was greatly affected by the restrictive zero-COVID policy in China, and it is taking longer than expected to recover. The gaming industry’s financial results for Q3 of 2022 were released recently, and the road to recovery will undoubtedly be debt-ridden.
The financial results – in addition to an analysis carried out by a renowned brokerage, Morgan Stanley – revealed that the gaming industry in Macau suffered a cumulative loss of around USD $1.5 billion between July and September. The companies’ EBITA during that period reflected the loss and cumulatively amounted to $603 million.
As a result of the pandemic and the restrictions that came with it, the Macau concessionaires had to take on a large amount of debt to stay afloat until things returned to normal.
Stanley estimated that the Macau casino industry’s cumulative net debt could amount to $24 billion. This is an almost fivefold increase from the $5 billion the industry owed before the onset of the pandemic.
The COVID-19 protocols notably kept regular visitors away from the venues and reduced the gross gaming revenue (GGR) of the industry. Stanley shed light on the two weeks lockdown period, which took place in July in Macau, as the root cause of the industry’s negative financial results for Q3.
The brokerage also revealed that during the third quarter, Macau gaming companies had to spend up to $1.5 billion in cash due to the limited operating capacity. This figure exceeds the $1.4 billion spent in the previous quarter.
Macau’s finances will likely take years before it can return to pre-pandemic levels. The GGR of the six Macau casino concessionaires for Q3 rounded up to $680 million, a 35% drop from the GGR the industry reported for Q2 this year. The figure is also 8% lower than that recorded during the same quarter three years ago.
According to a report by Fitch Ratings, between 2022 to 2024, Macau’s gaming industry will record a GGR of 27%, 50%, and 70% of 2019 rates, respectively.
The research firm noted that the city’s COVID testing, quarantine policies in the past years, and the gaming industry’s recovery would likely be delayed if the restrictions were tightened.
“Macau’s COVID testing/quarantine policies have changed frequently during the past few years. Gaming recovery could be delayed with the reinstatement of tighter restrictions with higher infection rates,” Fitch Ratings noted.
“Slower China economic growth could also negatively affect the gaming recovery, including for the valuable premium mass and higher-end players.”
Fitch Ratings further revealed that accessing capital for Macau’s Hong Kong-listed concessionaires would be limited until the region’s GGR shows some signs of recovery close to that of 2019.
“Capital access for the operators’ Hong Kong-listed subsidiaries, which are the primary debt issuers associated with Macau operations, is likely to remain limited until GGR recovers to levels closer to 2019 and the regulatory overhang from the gaming concessions subsides,” the research firm added.
“Refinancing needs are modest until 2024 when some subsidiaries will start facing debt maturities when concession renewal event risk will no longer be a concern. Positively, bond prices for Macau gaming issuers have rallied in response to easing travel restrictions.”
Earlier this year, the parent US-based company of Macau’s operators, Las Vegas Sands and Wynn Resorts, gave their China subsidiaries capital to tide them over the rough patch. Las Vegas Sands loaned Sands China $1 billion in July, while Wynn Resorts made a similar move a month prior when loaning Wynn Macau $500 million.
According to Fitch Holdings, more parent companies will likely make moves like these “should negative cash flows endure”.
Macau is currently in the process of retendering, and although it is expected that the government will approve the six concessionaires’ licenses, the addition of Genting Malaysia may prove a problem. According to industry executives, the company’s proposal is legitimate and, as such, should be taken seriously.
According to Fitch Holdings, in a case where an existing operator is unable to renew its license, the company’s debt-issuing financial profile will take some damage.
The research company added that depending on the circumstance, the gaming concession loss might likely result in a speedy multi-notch decrease in ratings.
“A loss of a gaming concession could result in an immediate multi-notch decline in ratings depending on the circumstances, which Fitch would then assess. The possibility of onerous capital commitments also remains a key unknown until the concession tender process is publicly outlined by the government, which could occur in the near term,” Fitch concluded.
“We have grown less concerned over the risk of potentially weaker operating economics given incremental clarity on enacted changes to the existing gaming law published by the Macau government.”