Recovery still yet to start in Macau

Six casinos in Macau are facing $25bn net debt by the end of the year and $27bn by 2024.

China’s stringent travel restrictions have slowed Macau’s economic recovery since the height of the COVID-induced lockdown, leading to desperate times for many businesses. Morgan Stanley estimates provided the $25bn figure, citing an increase in previous debt from $5bn in 2019 to $20bn.

continued reopening delays would only hurt the Asian market more

Analysts Praveen Choudhary, Gareth Leung, and Thomas Allen stated that continued reopening delays would only hurt the Asian market more; the $25bn figure could be realized before the turn of the year if restrictions stay in place.

Fighting the restrictions

The recent estimates did not come as a shock to many that have kept up with Macau’s casino scene. Earlier this year, three of the area’s six largest casinos saw their stock prices drop an average of 9.2% as the effects of the restrictions set in.?

Festering problems could only get worse if China’s restrictions continue into late 2023 instead of just early next year.?

Macau’s net debt could rise another US$2 billion, to US$27 billion by end-2023”

“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,” said Morgan Stanley. “Mass revenue could be at 50% of 2019 only versus base case of 95%.”

Macau’s market has needed a resurgence for a while now— in 2020, JP Morgan predicted that casinos would begin their recovery in mid-August. Over 18 months later, any tangible recovery process is still yet to begin.

Lingering issues

Another section in Morgan Stanley’s report provided an update on Macau operators’ future outlooks.

The analysts found that every company barring SJM Holdings was positioned to survive for over two years if they maintain their first quarter cash burn rates, including capital expenditure.

“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,” said Morgan Stanley’s analysts. “We estimate net debt/EBITDA ratios for Macau operators at 4x to 6x by end-2023 … despite [potential] travel reopening.”

The question of travel remains the biggest factor in any determinations for the market’s future. In February of this year, Macau reported 655,505 visitors, down significantly from the 3.5m in February 2019.?

almost 93% of the 2022 travelers came from mainland China

Almost 93% of early 2022 travelers came from mainland China, as the Korean and surrounding markets have dried up significantly.