By Farah Master and Scott Murdoch
HONG KONG (Reuters) - Light on debt and cash rich, Macau's Galaxy Entertainment (HK:0027) is bleeding $3 million daily in operating cost as the coronavirus crisis upends its casino business.
Such a jolt could sink most companies - a risk not taken lightly by global policymakers who have delivered various measures over the past two months to help cushion corporate losses.
Yet Galaxy and many of its counterparts in the world's biggest gambling hub have enough cash on hand to ride out the storm and, surprisingly, even survive on zero revenue for several months to a few years.
Having enjoyed robust earnings growth in recent years, thanks to insatiable gaming demand from mainland Chinese, the balance sheets of Macau's casino operators stand tall over those in Las Vegas, which are saddled with much higher debt.
A Reuters calculation shows the Macau casino operators came into 2020 with a cumulative cash position of just over $12 billion, providing a solid buffer to tide over the lean times.
Galaxy's (HK:0027) cash pile is a case in point.
Its policy of not dishing out regular dividends has seen it amass a war chest of around $5.7 billion over the past several years - allowing it to burn through $3 million daily on operating cost and weather the coronavirus for a lengthy period on zero revenue.
The survival of Macau’s gambling industry is crucial for the Chinese-ruled territory where the sector employs about three quarters of its 600,000 population, either directly or indirectly.
"It’s very difficult to predict how this is going to work out,” Robert Drake, Galaxy’s chief financial officer said at its full-year earnings briefing at the end of February during the height of the virus outbreak.
The coronavirus is also expected to delay a pipeline of multi-billion-dollar projects in Macau that were due to start this year.
While Sands China (HK:1928), MGM China (HK:2282), Melco Resorts (O:MLCO) and Wynn Macau (HK:1128) have lower buffers than Galaxy, they can still go without revenues for around 6-24 months, say analysts. All players can survive a minimum of half a year without having to tap debt financing, but anything longer could spell trouble.
MGM, Galaxy, Melco, Wynn and SJM declined a Reuters request for comment.
MARATHON, NOT SPRINT
To curtail the coronavirus, Macau barred all visitors from the mainland, neighbouring Hong Kong and Taiwan who had travelled overseas in the previous 14 days. Visitors from the greater China region make up more than 90 percent of its tourists.
The numbers trickling in so far are telling.
Although Macau’s casinos have reopened after a two-week suspension in February, revenues have plummeted between 80%-90%, hit by travel curbs and health regulations.
April’s gambling revenues, to be released on Friday, is expected to show a plunge of 95% year on year.
Daily visitors to Macau number around 200 versus over 100,000 a year earlier
"It's a marathon, not a sprint, and we can see that there's been a gradual improvement in mainland China, that hopefully, will trickle down into Macau," Galaxy's Drake said.
Fortunately, a solid period of growth for Macau's six casino operators, which have raked in over $200 billion in gaming revenues since 2014, has strengthened the industry's capacity to deal with the pandemic's far reaching impact.
Their average debt to equity ratio at 53% also compares favourably to the near 87% ratio for the Las Vegas players, according to Thomson Reuters (NYSE:TRI) Eikon.
Sands, which suspended its dividend payment due to the pandemic's impact, is bleeding nearly $4 million a day in operating costs. However, with cash reserves of around $1.4 billion, it can keep going for two years without any revenues, said DS Kim, an analyst at J.P. Morgan in Hong Kong.
Sands Chairman Sheldon Adelson said any resumption in dividend payment would depend on income going forward.
“I assure you I have not said yay dividends and yay buybacks for the last time,” Adelson said during an investor call following first-quarter results on April 22.
Sands reported a $166 million quarterly net loss, with others due to announce results in the coming weeks. Analysts expect to see only a gradual recovery in the second half once travel restrictions are loosened.
If casinos did move to tap the capital markets, bankers caution it would be a tough sell.
“All of the deals that we have seen in Asia have been in sectors where there has been visibility on what the future will look like, we don’t even know when people are going to be able to go to Macau again.”