MGM China has warned in a recent report that its ‘high indebtedness’ could ‘pose challenges’ for the operator to meet its obligations regarding unsecured notes.
At the same time, it could increase the group’s susceptibility to economic downturns, while hindering future financing efforts and require a significant portion of cash flow for debt servicing.
As of the end of December 2023, MGM China held HK$19.1 billion ($2.44 billion) in net debt, including borrowings, net of debt finance costs, and pledged bank deposits. By the same period, MGM held HK$24 billion ($3.06 billion) in unsecured senior notes and credit facilities.
‘This could limit operational flexibility and competitiveness, potentially leading to asset loss in case of default. Such consequences could significantly impact debt repayment capabilities,’ the operator stated in its 2023 annual report.
‘Moreover, under existing indentures, the company may incur additional debt, including senior secured debt, exacerbating existing risks.’
The Macau gaming operator experienced a record-breaking year in 2023, witnessing record-high performance across segments and continuing to outperform industry recovery.
According to unaudited financial data, MGM China saw an adjusted EBITDA turnaround from 2022 to a historical high of HK$7.2 billion ($921 million), representing 117 percent of 2019.
Still, the group warned that its level of indebtedness, mostly incurred during the pandemic years, could hinder its future growth.
‘Market volatility in interest rates also poses a significant risk. To manage this, the company utilizes a mix of fixed and variable rate borrowings and engages in interest rate swap agreements as needed,’ the group noted.
‘While fixed-rate debt instruments may insulate against interest rate fluctuations in the short term, maturing debt and new acquisitions could expose the company to future rate changes. Despite no new interest rate swap agreements in recent years, ongoing vigilance is necessary to mitigate potential risks.’
In order to minimize the credit risk with VIP gaming customers and gaming promoters, MGM China management has also delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts.
