Macau’s casinos will suffer ‘significant’ blow to cash flow as coronavirus forces Chinese gamers to stay away, warns Fitch
- Trips to Macau by mainland Chinese plummeted 81.7 per cent during the Lunar New Year holiday, according to official figures
- A Fitch report released on Friday cited the effects of restrictive travel measures put in place as part of efforts to curb the rapid spread of the virus
Macau’s casino operators are likely to suffer a “significant” hit to their cash flow thanks to the outbreak of coronavirus, which has just been declared a global health emergency, Fitch Ratings has warned.
A research report released on Friday by the credit ratings agency cited the effects of restrictive travel measures put in place by the Macau and Chinese governments as part of efforts to curb the rapid spread of the virus.
On January 28, Beijing announced a temporary freeze on individual visas for mainland tourists visiting the gambling hub, which had already seen an enormous drop in tourist numbers.
Trips to Macau by mainland Chinese dropped a staggering 81.7 per cent during the Lunar New Year holiday compared to the same period a year earlier, according to the latest figures from the Macau Government Tourism Office. During the fifth and sixth days of the Lunar New Year, January 28 and 29, visits dropped 90.6 and 91.8 per cent respectively.
Fitch noted that during the 2009 swine flu pandemic, Macau’s gaming revenue fell 17 per cent and visitor numbers declined 16 per cent in June, the month Macau reported its first confirmed case. However, by September of that year, revenues had recovered.
The big question for Macau’s casinos is how long the Wuhan coronavirus outbreak and associated travel measures will last.
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“If this is over in two months and forgotten in six, it won’t be a problem,” said Vitaly Umansky, a gaming industry researcher with Sanford C. Bernstein. “If it continues until summer and there’s no end in sight, that’s a problem.”
Fitch said that provided the outbreak did not last longer than half the year, damage to the casino operators should be restricted to cash flow. Should the outbreak last longer, the credit effects could be more “profound”, with punters trying new gaming venues or switching to illegal channels such as online betting.
Fitch noted that the four US-listed operators, Las Vegas Sands, Melco Resorts, MGM Grand and Wynn Resorts, all have “ample” debt-raising ability and cash to withstand the impact of the virus. They have a combined US$7 billion in excess cash and US$7.8 billion in revolving credit capacity.
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Macau operations accounted for about 64 per cent of property-level revenue for Las Vegas Sands, 72 per cent for Wynn, 22 per cent for MGM and 88 per cent for Melco, as of September 2019, according to Fitch.
Umansky said Galaxy Entertainment Group was in a relatively strong position to withstand the current outbreak because it has no debt. SJM has debt with banks rather than bonds but it is in the process of trying to open its long-delayed flagship casino, the Grand Lisboa Palace, estimated to have cost about US$5 billion.
In September last year, it was reported that the Grand Lisboa Palace opening had been delayed until the second half of 2020, possibly later still. Umansky said they could not open a new project in the current environment, but added that the troubled project did have one silver lining: the fact it was still unopened meant there would be no running costs, unlike existing properties, which would still have to cover operating costs, even as foot traffic in the casinos and at the tables was “lighter than anyone has ever seen.”
A spokesperson for Sun City, Macau’s biggest operator of gaming VIP junkets, said: “The coronavirus is certainly impacting Sun City VIP clubs, and we are still counting the actual figures.”
The impact of the Wuhan outbreak comes after a troubled 2019 for the Macau gaming sector. Overall gross gaming revenue fell 3.4 per cent from the previous year, to US$36.5 billion, thanks to the trade war and resulting slowdown in China’s economy.
