As I’m writing this, there appears to be very little light at the end of a very long tunnel for Macau.
The city is back in lockdown after the worst outbreak of the pandemic and despite the fact that each operator is burning through well over a $1 million a day to keep the lights on, the casinos have not been able to close their doors along with all the rest of the city’s entertainment facilities.
Keeping the casinos open, even though there is no chance of any revenue coming in, means that they still need to keep paying their sizable staffing bills.
As a result, analysts are starting to express concern about liquidity and cash burn. SJM is in the weakest position and is estimated to be going through about HK$22 million ($2.8 million) cash a day if you include interest expenses and maintenance capital expenditure.
The longer the COVID-impacted environment continues, especially where operators are barely EBITDA breakeven, the spotlight will shine brighter on individual companies’ liquidity, Bernstein’s lead analyst, Vitaly Umansky, wrote recently.
The brokerage notes that under the worst case of zero revenue all Macau operators have at least three months of cash on hand before needing to draw from credit facilities or tap into new financing.
Wynn Resorts recently stepped in to provide credit facilities of $500 million to its Macau unit in a move that analysts said is likely to be the first of such actions by parent companies to shore up local balance sheets.
“The concern is there, but the operators are seen as being able to weather the storm.”
It’s a different story for the city’s small-to-medium-sized businesses, which have said they are “desperate and hopeless.”
Analysts still repeat that longer-term they expect a bright future for Macau, led by the mass market as tourism resumes.
The trouble is there is no indication of when that might be. China has made zero-Covid a badge of national pride, suggesting that Chinese are unpatriotic if they fail to get behind the program.
The U.S. Ambassador to China, Nicholas Burns, has said he expects Beijing’s “zero COVID” policy to persist into early 2023, and that U.S. businesses were reluctant to invest in the country until restrictions ease.
As a result, Macau has little choice but to follow suit.
The longer-term goal is to diversify tourism revenue away from Mainland China, with the government even dangling the carrot of tax cuts for those who manage to draw in visitors from elsewhere.
However, in the short term, Chief Executive Ho Iat Seng has acknowledged that without a zero-Covid strategy Macau will not be permitted to have quarantine-free access to China and so opening up the doors to the rest of the world is not an option.
The borders are closed to all non-residents outside of the Greater China region and visitors from Hong Kong and Taiwan will have to quarantine at their own expense.
You’d have to really want to come to Macau for pleasure purposes to make that worthwhile.
Prior to the pandemic, non-China visitation was also a very small part of the mix and contributed very little to gross gambling revenue and profit.
It will take years of targeted marketing and visionary tourism planning to pull enough tourists in from elsewhere to even make a dent in the hole left by the Chinese.
So while there may be a silver lining for Macau.