Global brokerage and investments firm Morgan Stanley has reportedly warned that the combined debt of the six licensed casino operators in Macau could exceed $25 billion by the end of the year owing to China’s ongoing strict travel restrictions.

According to a report from Inside Asian Gaming, the New York-headquartered financial services giant also used an official Monday note to advise investors that these aggregated liabilities may well top $27 billion by the conclusion of 2023. The source detailed that the pessimistic predictions followed an earlier revelation that net debts for casino firms in the former Portuguese enclave had already risen from around $5 billion in 2019 to stand at approximately $20 billion.

Serious supposition:

Morgan Stanley analysts Gareth Leung, Thomas Allen and Praveen Choudhary reportedly revealed that their latest forecasts assume that China maintains its rigorous coronavirus-related travel policies towards those travelling into Macau until the start of the new year as well as mass-market gaming revenues staying at the same levels as seen in March and April. The trio purportedly went on to disclose that this state-of-affairs could even get worse should Beijing decide to continue its current border rules into the second half of 2023.

Lingering lull:

Macau is home to over 40 casinos operated by MGM China Holdings Limited, Galaxy Entertainment Group Limited, Melco Resorts and Entertainment Limited and SJM Holdings Limited as well as the local Wynn Macau Limited and Sands China Limited subordinates of Wynn Resorts Limited and Las Vegas Sands Corporation respectively. The latest news from Morgan Stanley reportedly comes some eight months after the same organization slashed its aggregated 2022 earnings before interest, tax, depreciation and amortization forecast for these six firms by 29% to roughly $6.4 billion from revenues it expects to be 27% lower than previously envisioned at something nearer $12.5 billion.

Reportedly read a statement from Leung, Allen and Choudhary…

“If China’s travel easing gets delayed to the second half of 2023, Macau’s net debt could rise another $2 billion to $27 billion by the end of 2023 by our estimates. Mass-market gaming revenues could be at 50% of 2019 only versus base case of 95% while industry enterprise valuation would be $77 billion implying eight-times enterprise valuation/earnings on 2024 estimated earnings before interest, tax, depreciation and amortization.”

Existing expenditure:

The Morgan Stanley analysts reportedly moreover advised investors that it expects every casino operator in Macau with the exception of SJM Holdings Limited to sustain their first-quarter cash burn rates over the course of the next two years. The experts purportedly disclosed that this forecast includes capital investments in addition to the six firm’s current available funds and undrawn liquidity.

The statement from Leung, Allen and Choudhary reportedly read…

“SJM Holdings Limited’s cash could only be sustained for five months based on its first-quarter burn rate but with undrawn liquidity after refinancing it could last for 20 months. We estimate net debt/earnings ratios for Macau operators at four to six times by the end of 2023 despite the potential travel re-opening.”