Casino 15-day suspension could lead to losses as high as US$1.5 bln – Analysts

Analysts consulted by Macau News Agency (MNA) estimate that the 15-day suspension of all casino operations in the city could lead to gaming revenues losses between US$900 million (MOP7.5 billion) and US$1.5 billion.

As part of recent measures to prevent the spread of the coronavirus outbreak, the Macau government has imposed since yesterday a 15-day closure of all 41 casinos in the city.

Even without the suspension, gross gaming revenues had already dropped by 11.3 per cent year-on-year in January 2020 to MOP22.12 billion.

“After the outbreak of the coronavirus epidemic and the related policies undertaken by various governments in controlling visitor flow, it has been estimated by many investment firms that Macau’s February gross gaming revenues may fall from around MOP800 million a day as normal to around MOP500 million,” University of Macau Associate Professor in Business Economics, Ricardo Siu, told MNA.

“Given that the epidemic situation continues in February, I may suspect that the daily GGR may only be around MOP400-500 million, or even lower.  In other words, the ‘real effect’ of the 15-day casino suspension decision by itself may lead to a lower of around MOP6-7.5 billion in GGR”.

In a note sent to MNA, the Director of Corporate Finance at Fitch Ratings, Colin Mansfield, said that since visitation was already down by about 80 per cent through the Chinese New Year holiday, the impact from fully shutting down the casinos is “on the margin”.

“Prior to the outbreak, Macau was generating roughly US$100 million in daily gross gaming revenues, so a 15-day closure implies US$1.5 billion of lost market-wide gross gaming revenues,” Mr. Mansfield stated.

“Our hypothetical stress case was a 50 per cent and 25 per cent decline in revenues in the first quarter and second quarter, respectively, in Macau. This resulted in an aggregate US$3.3 billion cash flow decline for all six Macau operators.”

Gaming revenue growth in Macau in 2020 was also expected to be negative, with Fitch Solutions having just announced they revised their economic growth predictions for Macau to a 3.8 per cent drop this year.

“Prior to the outbreak, we were forecasting flat growth for 2020 but external factors like trade relations between US/China and the coronavirus will have an impact,” the Fitch Ratings Director believed.

“Another potential offset is business interruption insurance policies, however, it’s difficult to say right now how the policies may apply”.

Although both analysts agreed that despite the obvious impact to the local economy, they also agreed that the decision was appropriate considering the health crisis circumstances.

Professor Siu believed that the 15-day decision is according to the Government’s “objective review of related medical reports about the high-risk period of the epidemic” and with the city is the “world’s largest renowned casino tourism destination”, this decision is “definitely a responsible one” to the related stakeholders in the economic society, who will likely gain real returns to the city” in the long run.

“The long-term social and economic benefits, though not necessarily be absolutely measurable in monetary terms, could be much higher […] In addition, as the MSAR Government is taking needed measures, like other supports to the local enterprises, etc, and the casino operators have agreed not to make their employees take no-pay leave, the impacts from the 15-day suspension decision could have been minimized,” Professor Siu noted.

Last week, Secretary for Economy and Finance Lei Wai Nong announced several measures to mitigate the economic impact of the virus outbreak, with annual individual cash handouts to be provided earlier while rents paid to the Macau government will be wavered for three months starting from February 1.

For Mansfield, it is clear that gaming concessionaires will have a meaningful, immediate impact on cash flows, but they are well-positioned to absorb this due to their “strong balance sheets, liquidity levers, and no near-term maturities”.

“Over the long term, we’re not expecting a long-lasting impact on Macau’s tourism or gaming industries and are expecting the impact on revenue and cash flow to be temporary. Idiosyncratic events like health or geopolitical/terrorism issues are perennial risks faced by gaming/tourism-related sectors and their impacts are typically transitory,” he noted.

Fitch also estimates that gaming operators credit profiles to be well-positioned to withstand the disruption as they expected the shutdown to be a “short-term cash flow hit”.

“Our views may evolve as the situation continues to develop. We’re still positive on the long-term prospects of Macau as a gaming market given its proximity to mainland China, growing connectivity of the Greater Bay Area, infrastructure improvements, and critical mass of high-quality integrated resorts,” Mansfield added.