According to an analysis by Morgan Stanley, Macau’s casino proprietors, who faced financial difficulties during the COVID-19 pandemic, are likely to reduce their debt loads over the next few years, potentially reverting to pre-pandemic levels by 2027. In the next three years, the bank expects these gambling companies to significantly reduce their outstanding debt obligations. As business volumes recover, this deleveraging process may accelerate in the second half of 2023.
The analysis indicates that it could take approximately three years for the Macau gaming industry to reduce its debt and reach 2019 net debt levels, assuming an annual free cash flow (FCF) of $6 billion or earnings before interest, taxes, depreciation, and amortization (EBITDA) of approximately $9 billion. The report profiles six main Macau operators: Galaxy Entertainment, Melco Resorts & Entertainment, MGM China, Sands China, SJM Holdings, and Wynn Macau.
The pandemic had a considerable impact on Macau’s gaming industry due to extended closures and travel restrictions from China. These gaming companies took on additional debt to withstand the hurricane, which resulted in credit rating downgrades and increased borrowing costs. From the end of 2019 to the end of 2022, total concessionaire debt in Macau increased five-fold.
Macau operators had nearly $20 billion in debt at the beginning of 2023, but they reduced this by $1.7 billion in the first half of the year. According to Morgan Stanley, in 2023 the rate of debt reduction could reach $3.4 billion.
At nine times debt-to-EBITDA, the Grand Lisboa Palace, which is owned by SJM Holdings, is the entity with the highest leverage. Melco and Wynn Macau fall between 5x and 6x. Melco’s debt-to-market-capitalization ratio of 131% is the greatest of all publicly traded companies. Both SJM and Wynn Macau are approximately 101%. Nevertheless, these operators have sufficient EBITDA coverage to meet their obligations. MGM China and Sands China, the two major operators in Macau, are estimated to have leverage ratios between 3x and 4x. The addition of 200 table games at MGM Cotai and MGM Macau is anticipated to assist MGM China in reducing its debt. MGM Resorts International controls 56% of MGM China.
Original story by: Casino.org
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