In COVID closedown, Macau casinos take billion-dollar hit holding out for new licences

By Farah Grasp

HONG KONG (Reuters) – Within the glitzy dealing rooms of Macau’s silenced casinos, the home is down billions of {dollars}, however cannot afford to fold its hand on the planet’s largest playing recreation.

A COVID-19 outbreak has meant full-scale closure for the previous Portuguese colony’s six casinos – the one locations in China the place playing is authorized. Even previous to their closure on July 11, analysts estimated the casinos had been burning by means of some $600 million every month due to COVID restrictions.

Playing centres world wide like Las Vegas, a sixth of Macau’s dimension in income, are cranking up enterprise as years of COVID curbs fade. However Sands China, Wynn Macau, MGM China, Galaxy Leisure, SJM Holdings and Melco Resorts face zero income for the close to future in locked-down, Chinese language-ruled Macau – and their operators’ contracts expire on the finish of this 12 months.

Having invested billion in Macau over the past 20 years, they’re absorbing losses as they put together to bid for brand spanking new licenses by subsequent month in a enterprise that generated $36 billion in income in 2019, the final 12 months earlier than COVID curbs slammed the sector.

“They (casinos) need to play the lengthy recreation. It is only a matter of restoration when it begins once more,” mentioned Alidad Tash, managing director of gaming consultancy 2NT8.

“The unhappy half is that it is going to be years till enterprise comes again to the place it was.”

Determined to get new licences – and soldier on financially within the meantime – the casinos are in some circumstances looking for loans from U.S. father or mother firms. They’re additionally making an attempt to showcase their position in society in Macau, the place the business accounts for greater than 80% authorities tax earnings, by not firing tens of 1000’s of workers with no gamblers to deal playing cards to or in any other case serve.

Not legally required to pay workers throughout a mandated closure, casinos have however continued to take action. Operators have additionally tried to burnish their social accountability credentials by supporting native companies and providing use of their resort rooms for quarantine.

On line casino operators and the Macau authorities didn’t reply to requests for remark.

ZERO REVENUE

The intently watched on line casino licence rebidding course of comes amid Macau’s worst coronavirus outbreak, with the federal government shutting down casinos for the primary time on Monday in additional than two years and locking down town.

Casinos have had near zero income since mid-June when the most recent outbreak started and are anticipated to have little to no earnings in coming months, analysts say. The sector had already been reeling for the reason that begin of the pandemic with revenues tumbling 70% in 2021 in contrast with 2019 to $10.8 billion.

Macau on line casino shares have additionally sunk dramatically – between 21% and 76% – since 2020 as town adopted China’s zero-COVID coverage.

That has hammered liquidity, although there aren’t any indications of any debt compensation issues.

Excluding cash put aside for rebidding – $600 million – SJM has about one month left in money reserves if casinos stay closed, in keeping with DS Kim, analyst at JP Morgan in Hong Kong, who expects the corporate to faucet its father or mother STDM for a HK$5 billion ($637 million) mortgage.

Sands China on Monday mentioned it secured a $1 billion mortgage from father or mother Las Vegas Sands to assist its working capital. That may give Sands sufficient liquidity to maintain going for 15 months, mentioned Kim.

Equally Wynn in June introduced a $500 million mortgage from its Las Vegas father or mother.

HIGH STAKES

China’s ongoing crackdown on unlawful playing and underground banking has additionally decimated excessive rollers, a vital income.

Macau’s authorities has rewritten the gaming legislation to strictly management on line casino operators, together with the precise to terminate a contract for causes together with public curiosity. It additionally raised the taxation fee payable to 40% from 39%, and halved the length of on line casino licences to 10 from 20 years.

Since 2002, the casinos have paid greater than $160 billion in taxes to Macau’s authorities, serving to make the densely packed metropolis of greater than 600,000 folks, one of many richest on the planet.

But it stays unclear how authorities will select the six new operators in a call not anticipated till the fourth quarter.

Additionally unclear – whether or not U.S. firms, Wynn, Sands, MGM, can proceed to make up half of the sector.

“It is a geopolitical, nationwide safety problem, as a result of the state of affairs the place Individuals dominate 50% of Macau’s main business might be an unacceptable nationwide safety danger,” mentioned Ben Lee, founding father of gaming consultancy IGamiX.

Lee mentioned China would favor U.S. firms to not have what Beijing views as politically delicate details about the habits of Chinese language gamblers.

“That has not sat effectively with China over the past 20 years,” he mentioned.

($1 = 7.8496 Hong Kong {dollars})

(Reporting by Farah Grasp; Modifying by Kenneth Maxwell)