Investors shun Macau Casinos’ bonds as tourism from China plummets



  • China’s strict Covid-19 crackdown is biting far beyond the mainland

Macau’s casinos once seemed to have a license to generate cash. They are now being squeezed by a worsening slowdown in Chinese tourism—and their bond prices are reeling as a result.

Prices of dollar bonds from Wynn Macau Ltd. have tumbled to as low as 68 cents on the dollar, levels more commonly associated with distressed debt. A bond from MGM China Holdings Ltd. that matures in 2027 was at about 76.6 cents on the dollar Wednesday, according to FactSet. Casino bonds that mature in 2024 are yielding more than 15%.

There are several reasons for the selloff of bonds issued by Macau’s casinos, including uncertainty about which of them will be allowed to renew their licenses this year. But a key factor is the virtual collapse of Chinese tourism to Macau, once a huge source of revenues for casinos in the city.

Mainland visitors to Macau in the first half of this year fell 78% from the same period in 2019, government figures show, while gross gambling revenue fell 82%, to $3.25 billion from $18.5 billion.

The damage to Macau’s casinos—and as a result its wider economy—shows how China’s strict zero-Covid policy is causing damage even outside the mainland.

“There’s no prognosis for when things will begin to reopen and when you can at least get to a cash-flow-positive environment," said Vitaly Umansky, senior analyst for global gaming at Sanford C. Bernstein.

The usual remedy to falling revenues is to cut costs. But Macau’s casinos haven’t been able to significantly cut their expenses, since the government has pressured them not to lay off local staff. The gambling industry is the biggest employer in Macau.

“At some point, you’re going to have to cut costs because you’re going to run out of money," said Mr. Umansky.

The lack of visitors from mainland China translates into refinancing risks for the casinos in the next few years, said Colin Mansfield, head of U.S. gaming, lodging and leisure at Fitch Ratings.

Macau’s six casino operators have enough liquidity for the foreseeable future—from eight months to well over two years, depending on the company, said Mr. Umansky. Even if their revenues recovered to just 30% of prepandemic levels, most of them could stop bleeding cash, he said.

James Goldstein, a gambling and retail analyst at CreditSights, said investors had naturally been expecting that things would improve, but the bad news has only gotten worse. Macau finally had its first major Covid-19 outbreak this summer.The government’s strict response stacked the odds even further against a near-term recovery in the sector. Macau’s economy, which is highly dependent on its casinos, contracted 39.3% in the second quarter, according to official sources.

“It’s just a matter of people becoming impatient with this idea that the recovery is coming, and then it never comes," said Mr. Goldstein.

Investors are also looking for signs as to whether China might begin to loosen Covid restrictions after the Communist Party congress in mid-October, which will decide the nation’s top leadership. But there is still no clarity on when any opening up in China might happen.

“We need to see some light at the end of the tunnel," said Gloria Tsuen, a senior credit officer at Moody’s Investors Service. “People need to see that at least a trend is going in the right direction as opposed to continuing in the current path," she said.

The fall in the prices of their bonds means Macau’s casinos are looking elsewhere for funding. Wynn Macau in June said it would get a revolving loan facility of $500 million from its U.S. parent at a 4% interest rate. The following month, Sands China Ltd. received a $1 billion loan from its parent, payable in July 2028.

The Macau casinos of Las Vegas Sands Corp. and Wynn Resorts Ltd. have enough liquidity—at $2.8 billion and $1.8 billion in the second quarter of 2022, respectively—to keep them afloat for more than two years, said Mr. Goldstein of CreditSights.

Las Vegas casinos have generated more than a billion dollars a month in gambling revenues for 17 months in a row. Macau casino revenues fell to a record low of $49 million in July, when casinos shut down for nearly two weeks during a citywide lockdown.

The strength of Las Vegas gives some breathing room to several Macau casinos. MGM and Wynn both run casinos in both cities. That makes them better able to weather the downturn than SJM Holdings Ltd., which operates only in Macau, said Ms. Tsuen. Las Vegas Sands, which sold its Vegas properties for about $6.25 billion to focus on its Asia operations, is supported by its casino resort in Singapore.

There are other wild cards for Macau’s casinos to consider. Last week, a company linked to Malaysian billionaire Lim Kok Thay’s Genting Group unexpectedly submitted a last-minute bid for a gambling license, meaning there are now seven companies vying for six spots. The current concessions will expire at the end of the year, and while the six incumbents are thought to have an advantage, others think the surprise challenger might just have a shot.

MGM, SJM and Genting didn’t respond to requests for comment.

Macau casino stocks rose on Tuesday, after Hong Kong said it was working on an easing of the quarantine restrictions that have limited travel between the two cities. The shares of Sands China, MGM China, Wynn Macau and SJM all rallied more than 6% that day, although all four stocks fell the following day.

This story has been published from a wire agency feed without modifications to the text

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