The debt burden of Macau’s six casino concessionaires could reach $25 billion by the end of this year and $27 billion by the end of 2023 unless the Chinese government eases up on strict Covid-related travel restrictions, according to financial analysts.
Since the highly contagious omicron variant emerged last year, Beijing has enforced a “zero-Covid policy,” which curbs the spread of the virus by closing borders whenever new cases are identified. As other countries gradually move away from mandatory shutdowns and travel limits, the policy is “becoming more entrenched in China, even as it upends the economy,” according to Bloomberg News. The policy uses a strategy of targeted lockdowns and mass testing to keep the virus at bay. Entire neighborhoods have been sealed off across the country.
In a note, analysts at U.S.-based investment bank Morgan Stanley pointed to liquidity issues for Macau’s once-powerful casino market. As reported in Inside Asian Gaming, net debt since 2019 has already increased fourfold, from $5 billion to $20 billion.
If the current travel restrictions are unchanged in 2022, that figure could grow to $25 billion, say analysts Praveen Choudhary, Gareth Leung and Thomas Allen. Their projection assumes that mass gaming revenue maintains the levels seen in March and April.
“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,” the team wrote.
They also looked at the liquidity risks for each operator. With the exception of SJM Holdings, all 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,” the analysts wrote.
