According to a note released by investment bank Morgan Stanley, the net debt of Macau’s six casino operators (concessionaires) could reach US$25 billion (€23.3 billion) by the end of this year, and is on track to hit US$27 billion (€25.2 billion) by the end of 2023.
Debt grew from US5 billion in 2019 to US$20 billion in 2021
The bleak forecast is believed to be a direct result of the delayed recovery of the Macau casino industry due to the strict travel restrictions put in place by mainland China.
Morgan Stanley had previously noted that the casinos’ net debt had increased from US$5 billion (€4.6 billion) in 2019 to US$20 billion (€18.6 billion) in 2021. According to the latest analysis from the bank, this will increase further if gross revenues stay the same for the remainder of the year as those posted in March and April.
In the note, Morgan Stanley analysts stated:
“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. 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 go into further detail outlining each individual casino operator’s prospects. According to their research, all operators except for SJM Holdings will be in a position to sustain their first quarter cash burn rates for over two years.
“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. We estimate net debt/EBITDA ratios for Macau operators at 4x to 6x by end-2023 … despite [potential] travel reopening.”
The note was released prior to the news that Macau had doubled its gross revenue week-on-week for the period 16th to 22nd May. However, despite this upturn, analysts expect revenues to return to normal levels over the next few weeks.
An experienced iGaming commentator and analyst based in New York City - Jenny reports on regulation and gambling industry news and events.