Macau’s casino concessionaires are on track to reduce their combined net debt to pre-COVID levels within the next three years, with accelerated deleveraging anticipated in the second half of 2023, according to a recent analysis by investment bank Morgan Stanley.
Debt Reduction Progress
- The net debt of Macau’s gaming industry surged by approximately $17 billion since the end of 2019, reaching well over $20 billion.
- Over the last six months, concessionaires have successfully reduced their debt by $1.7 billion, indicating an annualized reduction rate of $3.4 billion at the current pace.
- Analysts suggest that the pace of deleveraging may accelerate in the second half of 2023 as business volumes continue to increase.
Deleveraging Timeline
- Morgan Stanley estimates that it could take the industry roughly three years to return to 2019 net debt levels, based on an annual free cash flow (FCF) of $6 billion or around $9 billion in EBITDA.
- However, the timeline for deleveraging may be affected by the non-gaming commitments of each concessionaire, which could potentially slow down the process. The analysts note that non-gaming commitments involve cash outflow.
- They estimate that the average yearly spend on non-gaming commitments over a 10-year period is approximately 20% of estimated 2024 EBITDA.
Company-Specific Debt Metrics
- When examining net debt/EBITDA ratios, SJM Holdings is the most leveraged at 9x (based on estimated 3Q23 EBITDA), while Wynn Resorts and Melco Resorts fall between 5x and 6x, and Las Vegas Sands and MGM Resorts between 3x and 4x.
- Galaxy Entertainment Group holds a net cash position of -2x.
- To assess potential financial stress, analysts also consider debt as a percentage of market capitalization and EBITDA coverage of interest expenses.
- In terms of debt as a percentage of market cap, Melco Resorts has the highest position at 131%, while Wynn Resorts and SJM Holdings are at 101%.
- EBITDA coverage of interest expenses is more comfortable for all companies, with the lowest ratio being 2.5x for Wynn Resorts, Melco Resorts, and SJM Holdings.
- MGM Resorts’ gearing appears more favorable, and the addition of 200 new gaming tables is expected to further improve its debt position.
The analysis highlights the ongoing efforts of Macau’s casino operators to reduce debt levels, with a focus on achieving a healthier financial position in the post-pandemic era.