20220620-招银国际-Macau_Gaming__Q_A_after_the_final_draft_of_gaming_law_amendment_bill_4页_616kb

CMBI Credit Commentary Summary

Core Content Overview

This document provides a credit commentary on the Macau gaming sector, focusing on the implications of the final draft of the gaming law amendment bill, the current liquidity status of major gaming operators, and the potential impact of satellite casino phasing out. It also addresses the likelihood of near-term default and the outlook for investing in Macau gaming bonds.

Main Points

Regulatory Environment and Gaming Law Amendment Bill

• The final draft of the gaming law amendment bill is largely similar to the initial version from January 2022.
• Key changes include:
  • Concessionaires must maintain a net asset value of at least MOP5bn throughout the concession period (Article 17).
  • Levies for public good are set at 5% (previously not exceeding 5%), with potential waivers or reductions if concessionaires contribute to attracting more overseas tourists (Article 22).
• The total gaming tax and levies could rise to 40% (35% gaming tax + 5% levies), up from the current 38–39%.

Liquidity and Financial Health

• Major gaming operators have sufficient liquidity to cover 9–16 months of operations based on FY21 or LTM cash flow.
• Liquidity levels:
  • SJM (FY21): 987 MOP
  • Melco (FY21): 3,303 MOP
  • Studio City (LTM): 956 MOP
  • Sands (FY21): 2,071 MOP
  • Wynn (LTM): 2,208 MOP
  • MGM (FY21): 688 MOP
• Cash burn (including operating expenses, debt servicing, interest, capex, and minimum capital requirements) ranges from 2171–2234 MOP for SJM to 3599–3699 MOP for Sands.
• The liquidity in months ranges from 8.7–8.8 for MGM to 15.8 for Studio City.
• SJM's liquidity was notably improved after securing HKD19bn in new loans.
• Studio City raised USD300mn in February 2022, and Wynn's parent company provided USD500mn in liquidity support.

Bond Investment Outlook

• The authors are not strongly convinced that it's the right time to buy Macau gaming bonds.
• The key drivers for bond performance are the quarantine policy and visa approval for mainland travelers, both of which remain unclear.
• If the policy issues are resolved, the authors prefer deeper value operators.
• Preferred order: SJMHOL > STCITY > WYNMAC > MPEL

License Renewal Timelines

• The Legislative Assembly will have the second and final read of the amendment bill before 26 Jun'22 (end of current gaming concessions).
• Existing concessionaires signed a 6-month extension for their licenses on 23 Jun'22, with a cost of MOP47mn.
• The second read of the "Regime for the exploitation of games of chance" bill is expected before mid-Aug'22.
• The tender process for new concessions will begin after this, with completion by Nov'22.

Satellite Casinos

• Concessionaires will have a 3-year grace period for satellite casino operations.
• The Regime for the exploitation of games of chance may accelerate the phasing out of satellite casinos.
• SJM is most affected, with 14 of the 18 satellite casinos under its control.
• Some operators, such as Dragon Group and Emperor, have indicated they may cease operations after June 2022.
• Galaxy confirmed that 2 out of its 3 satellite casinos ceased operations on 15 Jun'22.
• SJM paid USD2.7mn to take over a satellite casino at Grand Emperor Hotel from 27 Jun'22 to 31 Dec'22.
• Macau's gross gaming revenue in 2021 was only 30% and 24% of 2019 and 2013 levels, respectively, indicating over-capacity and manageable near-term impact from satellite casino closures.

Key Information

• Near-term default risk: Low, as operators have adequate liquidity and no immediate repayment pressure.
• First maturity of USD bonds: MGMCHI'24 (USD750mn) due in May 2024.
• Author Certification: The report is certified to reflect the personal views of the author, with no direct compensation tied to the content.
• Important Disclosures:
  • Risks are involved in securities transactions.
  • The report is not investment advice and should be used with caution.
  • CMBIS may have investment banking relationships with the companies mentioned.
  • The report is intended for major US institutional investors only.
  • It is distributed in Singapore by CMBISG, an Exempt Financial Adviser.

Disclaimer

• The report is for intended recipients only and cannot be reproduced, reprinted, or distributed without prior written consent.
• CMBIS or its affiliates have investment banking relationships with the issuers covered in the report.
• The report may not be suitable for all investors and should be used with the guidance of a professional financial advisor.