Macau’s four US-listed casino operators – Las Vegas Sands, Wynn Resorts, MGM and Melco Resorts – could face a US$2 billion hit to their cash flow as a result of reduced Macau visitation caused by the Coronavirus, according to ratings agency Fitch.
However, the quartet should be able to comfortably withstand such impact due to ample debt capacity and the absence of any major maturities in the coming 12 months.
In issuing its assessment of Macau’s gaming industry on Friday, Fitch warned that the impact on gross gaming revenue in Asia’s gaming hub was likely to be significantly greater than in 2009, when the Asian swine flu epidemic saw GGR fall 17% in Q1 and 16% in Q2, because authorities have been faster to implement comprehensive travel restrictions. Such restrictions contributed to a whopping 78.3% decline in visitation during the seven-day Chinese New Year holiday, traditionally one of the most lucrative periods each year for Macau’s casinos.
“The 2019 Novel Coronavirus’ cash flow effect on Macau’s gaming operators will be significant as the virus spreads and regional governments’ precautionary measures continue,” Fitch said.
“Assuming first-quarter and second-quarter 2020 revenue from Macau declines by 50% and 25% respectively, the combined hit to the four operators’ cash flow would be US$2 billion relative to about US$11 billion of EBITDA and US$1.3 billion of FCF Fitch previously forecast under a status quo 2020 scenario.
“This US$2 billion cash flow effect scenario considers the operators’ expense structure and further assumes 50% of the revenue decline flows down to EBITDA.”
However, “the solid credit profiles of casino operators covered by Fitch should enable them to withstand this pressure.
“Under a severe scenario, all four US-listed gaming issuers with exposure to Macau have adequate liquidity to withstand the potential FCF effects from reduced visitation. All have access to ample liquidity and have no major maturities in 2020.
“Absent an unprecedented duration, we do not expect the 2019-nCov outbreak to lead to widespread downgrades.”
