American investment bank JPMorgan Chase and Company has reportedly predicted that Macau casino operator SJM Holdings Limited is unlikely to pursue a policy of purchasing any further ‘satellite’ gambling assets.

According to a report from Inside Asian Gaming, the forecast follows the Hong Kong-listed operator’s Thursday decision to issue convertible five-year bonds worth slightly over $242.82 million so as to be able to buy the Casino Oceanus at Jai Alai facility it already runs from its Sociedade de Turismo e Diversoes de Macau (STDM) SA parent.

Reasonable rationale:

SJM Holdings Limited’s move for the Casino Oceanus at Jai Alai venue reportedly comes as the government of Macau is preparing to ratify new legislation that could potentially require casino operators to truly own any properties in which they offer gambling entertainment. The source speculated that this purchase may moreover be an attempt by the firm to shore up its reputation as it prepares to bid for a new ten-year local gaming concession.

Thinkable terminations:

However, JPMorgan Chase and Company analysts Livy Lyu, Amanda Cheng and DS Kim reportedly used an official filing to advise investors that SJM Holdings Limited will likely not conclude any similar ‘satellite’ casino deals and could instead begin closing some of the properties it manages on behalf of others.

Reportedly read a statement from the JPMorgan Chase and Company trio…

“We don’t think SJM Holdings Limited needs to buy any other assets because Casino Grand Lisboa and Grand Lisboa Palace are 100% owned by SJM Holdings Limited and the firm owns the gaming floor of the old Lisboa property. SJM Holdings Limited will probably cease operations of the very small self-run Casino Eastern and Casino Taipa properties, which didn’t make any meaningful profit even before coronavirus and, from what we understand, the reversion of ‘satellite’ casinos is the responsibility of ‘satellite’ asset owners not concessionaires.”

Adverse attitude:

The move to purchase the 146,130 sq ft casino within the Casino Oceanus at Jai Alai via the bonds with an annual interest rate of 2% could reportedly see STDM SA’s aggregate stake in SJM Holdings Limited rise by 3.4% to stand at 58.1%. This purportedly comes as JPMorgan Chase and Company admitted to being unsure as to how much earnings before interest, tax, depreciation and amortization the downtown enterprise chalked up before the appearance of the coronavirus pandemic.

The JPMorgan Chase and Company trio reportedly stated…

“The Casino Oceanus at Jai Alai is reported as part of ‘other self-promoted casinos’ but we understand SJM Holdings Limited used to pay around $12.5 million per annum to STDM SA as rent. The implied cap rate is about 5%, assuming SJM Holdings Limited can renew its license. This itself looks okay, although we do not like the timing when SJM Holdings Limited suffers severely from a liquidity strain with very limited runway and the potential dilution of 8% of its shares. Net-net, we view the news as net negative to sentiment but not hugely needle moving. SJM Holdings Limited remains our least-preferred name in Macau.”