Commitment concerns for Macau casino operators
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The combined net debt of the six licensed casino operators in Macau has quadrupled since the start of 2019 to more than $20 billion. The government for the former Portuguese enclave has provisionally agreed to extend the operators’ lucrative concessions by a further six months to the end of this year.
Macau is home to over 40 casinos operated by MGM China Holdings Limited, Galaxy Entertainment Group Limited and Melco Resorts and Entertainment Limited. Morgan Stanley analysts Gareth Leung and Praveen Choudhary say the six firm's aggregate net debt had topped $19 billion in December and could go on to exceed $23 billion by the end of the year.
Morgan Stanley analysts say that mounting debt has driven down valuations. Coronavirus outbreaks in Hong Kong and mainland China are also complicating investor fears. There are uncertainties connected with Macau’s under-consideration draft gaming bill and its license renewal process.
Some Macau sextuplets have managed to turn in positive quarterly earnings before interest, tax, depreciation and amortization figures at various points over the course of the past two years. However, free cash flow to equity negative.
Galaxy Entertainment Group Limited is the only Macau casino operator that is free cash flow to equity positive. Sands China Limited and Melco Resorts and Entertainment Limited could follow suit if they can continue growing their mass-market revenues.
