SJM staff costs could increase by up to HK$600 million (US$76.4 million) in the second half of this year as it absorbs gaming staff from satellite casinos under its license onto its payroll, Fitch Ratings indicated.
The rating agency made the statement in a dispatch in which it downgraded SJM Holdings Limited’s Long-Term Foreign-Currency Issuer Default Rating and senior unsecured rating to ‘BB-‘ from ‘BB’.
SJM has recently agreed to acquire Casino Oceanus from its parent, Sociedade de Turismo e Diversões de Macau (STDM), for HK$1.9 billion to comply with new gaming laws that require concession holders to return casinos and related equipment to the Macau government at the end of the concession period.
The consideration will be settled by issuing a five-year convertible bond to STDM, however, Fitch saw ‘limited risk’ of further large acquisitions of third-party owned, self-operated casinos.
About 14 of all third-party promoted casinos in the SAR operate under SJM’s gaming license.
The Grand Emperor Hotel casino was previously set to close on June 26 but after an agreement between the hotel owner Emperor Entertainment Hotel Limited and SJM, the casino will continue operating until December 31.
Two satellite casinos at Macau Fisherman’s Wharf will also continue their operations at least until December 31, as the agreement with gaming concessionaire SJM has also been extended for six months, Macau Legend CEO Melinda Cha, revealed previously.
Co-chairman and executive director of gaming operator SJM, Angela Leong On Kei, assured that the group would absorb any workers left unemployed by the closure of satellite casinos linked to the gaming concessionaire after labour authorities reiterated concessionaires would bear the responsibility to take the necessary diligence to safeguard the rights of dismissed satellite casino workers.
The gaming operator reported a negative Adjusted EBITDA of HK$1.5 billion in 2021, with total employee benefit expenses amounting to HK$6.1 billion.
Still, the operator has also recently secured the necessary approvals from banks and the Gaming Inspection and Co-ordination Bureau (DICJ) for the refinancing of HK$19-billion (US$2.4-billion) syndicated loans.
‘[SJM] expects to draw down the funds by the end of June. The refinance will boost liquidity by HK$5.7 billion after it repays its HK$13.3 billion loans due February 2023.
The rating agency estimated that HK$4.2 billion will be available as working capital after earmarking HK$1.5 billion for construction cost payables on Grand Lisboa Palace.
‘This should be sufficient to fund operations into 2H23, even if the operating environment fails to improve, assuming an EBITDA loss of HKD2 billion, HKD500 million in maintenance capex and an HKD800 million annual interest expense. SJMH has also said that its parent, STDM, is prepared to provide financial support of up to HKD5 billion, if necessary.’
However, Fitch Ratings estimated SJM’s net revenue baseline would recover to levels equating to only 27 per cent of 2019 levels in 2022, with EBITDA margin to gradually recover to 2019 levels by 2025.
